Gold is down on rumors that the Fed may raise rates again in June. The ECB intends to keep raising rates

By JustMarkets 

At the close of the stock market on Friday, the Dow Jones Index (US30) increased by 1.65% (-1.30% for the week), and the S&P 500 Index (US500) was up by 1.85% (-0.73% for the week). Technology Index NASDAQ (US100) gained 2.25% on Friday (+0.21% for the week). Investor fears that the economy is headed for a recession in the second half of the year bolstered bets that interest rates will soon decline.

Friday’s data showed that the US economy added 253,000 jobs (forecast +181,000). The unemployment rate fell from 3.5% to 3.4%. The unexpected rise in US hiring and payrolls last month makes it more likely that the Federal Reserve will hold interest rates high longer and possibly keep the possibility of an 11th straight hike in June.

St. Louis Federal Reserve President James Bullard said Friday that he is willing to be “open-minded” about whether to raise rates or leave them unchanged at the Fed’s June meeting, joining the “data-dependent” position. Bullard said he thinks the 5% to 5.25% rate level reached this week is still at the “lower end” of what might be needed; his own projections suggest that rates may need to rise another half a point for inflation to decline steadily. The US inflation data in the coming week will give an indication of whether the Federal Reserve can halt its series of interest rate hikes at next month’s meeting.

Deposits at US commercial banks fell to their lowest level in nearly two years by the end of April, data released Friday by the Federal Reserve showed. Total lending by banks rose, driven by record levels of outstanding loans and leases.

Equity markets in Europe were mostly up on Friday. German DAX (DE30) gained 1.44% (+0.48% for the week), French CAC 40 (FR40) added 1.26% on Friday (-0.88% for the week), Spanish IBEX 35 (ES35) increased by 1.11% (-2.06% for the week), British FTSE 100 (UK100) was up 0.98% (-0.68% for the week).

The European Central Bank will continue to raise interest rates until inflation is under control, two ECB officials said Friday. French central bank governor François Villrois de Galleau and his Lithuanian counterpart Gediminas Simkus confirmed the ECB’s intention to raise borrowing costs even further. Data on Friday also showed that Eurozone retail sales fell more than expected in March, signaling a cooling of demand.

Saudi Arabia’s economy grew by 3.9% in the first quarter thanks to non-oil activity. The IMF reports that the Saudi economy grew by 8.7% last year but forecasts that Saudi GDP growth will increase by 3.1% this year.

Gold fell back from record highs amid signs that the Fed may raise rates again in June. Gold has an inverse correlation to government bond yields, which depend on the dollar index. A rise in interest rates causes the dollar and government bond yields to rise, which is negative for gold and silver. But the medium-term outlook for gold for the rest of the year remains bullish, as the US Federal Reserve is in the final phase of its tightening cycle.

Asian markets have gained substantially over the past week. Japan’s Nikkei 225 (JP225) gained 2.39%, China’s FTSE China A50 (CHA50) added 0.37%, Hong Kong’s Hang Seng (HK50) increased by 0.50%, India’s NIFTY 50 (IND50) jumped by 0.96%, and Australia’s S&P/ASX 200 (AU200) was up by 0.37%.

On Friday, the Monetary Authority of Singapore (MAS) imposed additional capital requirements on DBS Bank, the banking arm of the country’s largest lender, DBS Group, after disruptions to its banking services in recent months.

The Australian government intends to lower its inflation forecasts and also forecasts a longer unemployment decline in the 2023/24 budget, which should lead to a much-needed rise in real wages. Unemployment is forecast at 3.5% at the end of the second quarter.

In the commodities market, futures on cotton (+4.03%), wheat (+3.94%), silver (+2.79%), and corn (+2.09%) showed the biggest gains last week. Futures on natural gas (-12.32%), WTI oil (-7.11%), Brent oil (-6.17%), and lumber (-2.15%) showed the largest drop.

S&P 500 (F) (US500) 4,136.25 +75.03 (+1.85%)

Dow Jones (US30)33,674.38 +546.64 (+1.65%)

DAX (DE40) 15,961.02 +226.78 (+1.44%)

FTSE 100 (UK100) 7,778.38 +75.74 (+0.98%)

USD Index 101.28 -0.12 -0.12%

• – Japan Monetary Policy Meeting Minutes at 02:50 (GMT+3);
• – Japan Services PMI (m/m) at 03:30 (GMT+3);
• – German Industrial Production (m/m) at 09:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.