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Gold soars, stocks enjoy best quarter since 2019

Vantage Updated Updated Thu, 2024 March 28 08:24

Headlines

* USD ends strong first quarter with Treasury yields steady

* Stocks settle at more record highs with five straight months of gains

* Gold soars to new all-time peak at $2,225

* Holiday markets await US Core PCE inflation data

FX: USD finished the month and quarter in good shape. Its third straight month of gains was helped by an upward revision in quarterly GDP to 3.4% from 3.2%. Wednesday comments from a Fed official also helped. Waller said the central bank wasn’t in a hurry to cut rates and was slightly more concerned over sticky inflation seen at the start of the year. The February high and year-to-date top is at 104.97.  

EUR dropped to a low of 1.0775 before paring some losses. Recent country CPI data from Spain was softer than expected. That has firmed up a June rate cut with bets on a 25bp move now given above an 85% chance. That is higher than the Fed’s roughly 62% odds and pushed rate differentials to their widest of the year.

GBP ended virtually unchanged after dipping to a low at 1.2586. That tapped the 200-day SMA support level. One of the MPC’s hawks said that rate cuts were “a long way off”. Final Q4 GDP was confirmed at -0.3%. But the economy is expected to pick up in the first quarter. Markets see the first rate cut in August.

USD/JPY continues to hover just below the intervention high around 152. There has been much speculation about The Ministry of Finance meeting with the BoJ, though nothing official has been confirmed. One thought is that the authorities could pull the trigger when market liquidity is thin over the holiday break.

AUD fell to 0.6485 before climbing back above 0.65. The CNH fell with the major above 7.26 again, so not helping the antipodean currencies. USD/CAD rose above 1.36 resistance before falling back again. Canadian GDP beat estimates by two-tenths printing at 0.6%.  

Stocks: US equities closed marginally better to wrap a stellar quarter. The broad-based benchmark S&P 500 finished 0.11% higher at 5254. The tech-heavy Nasdaq 100 lost 0.03% to close at 18,274. The Dow Jones settled 0.12% up at 39,807. For the quarter, the S&P 500 gained 10.2% marking its best first three months of the year in five years. The Dow lagged, adding 5.6%. Reddit dropped nearly 15% after its CEO and COO disclosed selling over one million shares.

Asian futures are in the green. APAC stocks traded mostly positive after the upleg into the close from Wall Street on Wednesday. The ASX 200 rose to a fresh all-time high with strength in the miners leading broad-based gains. The Nikkei 225 came under pressure after the yen bounced back from 33-year lows.

Gold broke higher to a record top at $2,225. The precious metal is up 8% this year with the rate cut theme boosting bugs. Geopolitical concerns also remain elevated in Ukraine and the Middle East. In the near-term, lower US Treasury yields and a stable USD helped.

Day Ahead – US Inflation (Core PCE)

Important US inflation data is released later today when many major markets will be closed for the holiday period. Core PCE is expected to rise +0.3% m/m in February, cooling from January’s +0.4% print. That would mean an annual rate at 2.8%.

The Fed’s updated economic projections released last week saw core PCE revised higher to 2.6% y/y from 2.4%. Chair Powell reiterated that the Fed wanted greater confidence that inflation was moving sustainably down to its 2% goal before it begins cutting interest rates. He again acknowledged that the road to lower inflation could be bumpy. But he didn’t seem too concerned by the hotter data in January and February which he put down to seasonals. Any suggestion in the figures that inflation is picking up could dash hopes that Fed easing will start soon, with a patient approach likely to continue.

Chart of the Day – USD/JPY just off the intervention zone

USD/JPY hit a multi-decade high on Wednesday at 151.97, a level last seen in 1990. Markets have been on high alert for intervention which previously came around here in October 2022. The Ministry of Finance sold $15-20bn initally in September of that year and a total of around $70bn over two months.  Remember that officials check the rate of change more than levels.

Dovish BoJ guidance hasn’t helped, even allowing for Nikkei reports about more rate hikes in July and later in 2024. Still-high US Treasury yields also support the major. These need to turn lower for a more protracted move down in the major if the BoJ stay uber-patient on policy normalisation. The prior intervention top is at 151.94. The mid-February high is below at 150.88.