S&P 500, Gold, US Dollar, Global Inflation Data, US Earnings Season

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Global equity markets rose while the US dollar slipped in the past week on growing expectations that the US Federal Reserve is nearing the end of its tightening cycle. The MSCI All Country World Index rose 1.3%, and the US dollar index (DXY index) fell 0.5%. Within equities, the S&P 500 rose 0.8%, while the Nasdaq 100 index gained 0.1%. The German DAX 40 advanced 1.3% and the UK FTSE 100 jumped 1.7% respectively, while Japan’s Nikkei 225 soared 3.5% and the Hang Seng index rose 0.5%.

A subdued US CPI report on Wednesday and the unexpected decline in US producer prices cemented the view that broader price pressures are subsiding. This coupled with a forecast from Fed staff showed that banking sector stress would tip the economy into a mild recession was enough to cement the view that the Fed is nearing the end of the tightening campaign.

Minutes from the FOMC meeting in March published in the week showed several policymakers considered pausing interest rate increases, but concluded high inflation needed to be tackled. This was echoed by Richmond Fed President Thomas Barkin that price pressures are not sufficiently weak, San Francisco Fed President Mary Daly remarks on Wednesday that the Fed has “more work to do”, and Fed Governor Christopher Waller comments on Friday that the central bank’s lack of progress on bringing down inflation meant rates needed to move higher.

Year to Date Equity Market Performance

Source Data: TradingView

Data published on Thursday showed US producer prices unexpectedly declined in February, solidifying the view that broader price pressures are cooling. This follows a subdued US CPI report on Wednesday and the dovish tone of the minutes of the FOMC meeting in March, boosting hopes that the Fed is nearing the end of its current tightening cycle. Interest rate markets are pricing in about a 78% chance that the Fed will raise rates one more time by 25 basis points at its May 2-3 meeting, according to CME’s FedWatch tool.

The first-quarter US earnings season has kicked off on a strong note, according to FactSet. So far 6% of the companies in the S&P 500 have reported actual results for Q1 2023, of which 90% have reported actual EPS above estimates. The earnings season picks up steam in the coming week with several high-profile companies reporting, including Goldman Sachs, Morgan Stanley, Netflix, and Bank of America.

Year to Date Performance of Key Currency Pairs

Source Data: TradingView

A spate of macro data is due on Tuesday, starting with China’s Q1 GDP, and industrial production, retail sales, and fixed asset investment for March; plus, minutes of the RBA meeting, German ZEW economic sentiment for April, and Canada’s March inflation data. Euro area inflation and UK inflation data for March are due on Wednesday, and New Zealand inflation data for Q1, and the ECB monetary policy meeting accounts will be released on Thursday. Japan’s inflation data for March is due on Friday.

Forecasts:

Euro Week Ahead Forecast: EUR/USD Looking to Build A New Base

EUR/USD made a fresh yearly high this week and looks set to move higher. A period of consolidation may help set the pair up for the next leg.

Pound Sterling Forecast: UK Fundamental Data Fails to Inspire, CPI Next

Recent GBP/USD performance flatters the pound while further afield, sterling has not performed all that well particularly against the euro and franc. UK CPI up next.

US Dollar Weekly Forecast: Without Need for Safety, DXY May Keep Getting Punished

Not much love seems to be in store for the US Dollar as traders continue focusing on ebbing inflation, a dovish Federal Reserve and a potentially resilient labor market. Where to for DXY?

Australian Dollar Outlook: Bonds and CPI Might Drive the RBA

The Australian Dollar jumped some hurdles last week, but some key levels lie ahead, and US Dollar weakness can only do so much. Bonds spreads might provide some clues until AU CPI.

Gold Weekly Forecast: Is it Time to Turn Cautious on XAU/USD?

Gold’s rise to a new 13-month high reaffirms that the near-term trend remains up on hopes that the US Fed is nearing the end of the tightening cycle. The yellow metal is now approaching one of the strongest resistance levels that it has faced in months.

S&P 500 Week Ahead Forecast: Bullish Momentum Fades as Bears Flirt with Comeback

The S&P 500 and Nasdaq 100 rose slightly during the week, but upward momentum waned as interest rate expectations have begun to drift higher from their level of a few weeks ago.