The Axiom IFS Update 30th April 2024

The prospect of interest rate cuts in Europe happening earlier than in the USA or UK is rising as economic prospects look likely to diverge.

 

Traders found themselves in an uncomfortable equilibrium last week, reacting aggressively to each marginal development that moved the needle before the next Fed meeting which starts tomorrow. Nevertheless, despite the increased volatility, most currency pairs remain in recent ranges the dollar DXY index declined 0.15% on the week. One region where recent ranges are being tested, however, is Asia. The most pronounced example is Japan, where following the BoJ’s dovish meeting on Friday and the near-2% sell-off thereafter, speculation over potential intervention by the central bank has been elevated. This meant the yen was in focus for traders at the start of the week. Declining 1.4% upon opening, the yen crossed 160 per dollar for the first time in 34 years, before sharply retracing 3%, endorsing last week’s speculation of imminent BoJ intervention.

GBP.

The Pound rallied against the Dollar and the Euro yesterday, reaching its highest levels in around two weeks. The move comes following mixed guidance from Bank of England policymakers over the inflation outlook. Consequently, investors have reduced their bets on BoE rate cuts. Looking forward, and in the absence of top-tier economic data releases from the UK, sterling is poised to follow market price dynamics.

USD.

The U.S. Dollar was relatively flat as market participants await tomorrow’s Federal Reserve meeting. The central bank is expected to keep rates steady but could potentially offer hawkish signals in the wake of sticky inflation readings. In fact, investors will take more cues from the tone of the meeting and Chair Jerome Powell’s press conference. For now, markets expect only one Fed rate cut in 2024.

EUR.

The Euro struggled to attract support yesterday after economic sentiment in the Eurozone unexpectedly declined in April. In addition, mixed German inflation figures infused the bloc’s single currency with some volatility. Ultimately, the uncertainties surrounding the ECB’s rate cut timing seem to be dragging the Euro lower; thus, creating further headwinds for the bloc’s single currency.

CAD.

While Wednesday’s Fed meeting and Friday’s payrolls are likely to be the key USDCAD catalysts this week, on the domestic front loonie traders will also be keeping a close eye on February’s GDP data, set for release today, not to mention appearances by Governor Macklem and Deputy Governor Rogers in Parliament later this week.

AUD.

The Australian Dollar (AUD) continued its winning streak on Monday that began on April 22, trading around a three-week high. The AUD’s upward momentum is fuelled by increasing hawkish sentiment surrounding the Reserve Bank of Australia (RBA), spurred by last week’s CPI inflation data surpassing expectations.  Investors are likely awaiting the March Retail Sales data, scheduled for release on Tuesday, as it provides insight into Australia’s consumer spending habits, which significantly impact inflation and GDP trends.

GOLD.

In the Asian trading session on Tuesday, gold prices declined to $2,329 per ounce, a noticeable descent from recent highs, as market participants prepared for the U.S. Federal Reserve’s meeting. Despite a 4.2% increase in April, following a 3.5% rise in March, gold’s attractiveness has been compromised by stronger forecasts for the U.S. dollar and diminished safe-haven demand amid cooling Middle East tensions.

STOCKS.

Stocks paused their gains yesterday amid a flurry of corporate news and earnings with traders adopting a cautious stance before the Federal Reserve’s policy decision on Wednesday. Europe’s benchmark Stoxx 600 posted small moves as car makers Volkswagen AG, Mercedes Benz and Stellantis retreated, offsetting better-than-expected economic data from France and Spain. HSBC Holdings Plc climbed more than 2% after solid earnings and the surprise departure of Group Chief Executive Officer Noel Quinn. Big retail names are also due to report, with earnings from Amazon, McDonald’s and Coca-Cola.

CRYPTO.

Australia is set for a wave of Bitcoin exchange-traded fund launches, following in the footsteps of the US and Hong Kong, as issuers like Van Eck Associates Corp. and BetaShares Holdings Pty line up for listings. ASX Ltd, which handles around four-fifths of the country’s equity trading, is expected to approve the first spot-Bitcoin ETFs for the main board before the end of 2024, according to people familiar with the matter, who asked not to be identified as the information is private.

OIL.

Oil held its biggest drop in almost two weeks as discussions on a possible cease-fire in the Middle East reduced the risk premium for crude. Brent crude traded near $88 a barrel after closing 1.2% lower on Monday, with WTI under $83. The gap between Israel and Hamas on an agreement to release hostages has narrowed in recent weeks and a deal was close, according to two people familiar with the deliberations.

 

 

 

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