The rare regularity of simultaneous highs in stock and gold prices is just what we’re seeing right now. This is not a good sign for the stock. On the other hand, good news should be brought by central banks in Europe and the US, who are planning to cut interest rates this summer.
The first swallow was the Swiss central bank, which cut interest rates earlier than expected, marking the beginning of the upcoming broader monetary policy shift.
Gold shines again – 11 percent. growth since the beginning of the year
Typically, gold is considered a relatively safe investment vehicle to which funds are directed in times of turbulence in the financial markets. However, since the beginning of the year, the financial markets have been in an upbeat mood, at the same time, the price of gold has increased by about 11 percent this year. and is at the highest level in the entire history of the price, Swedbank analysts note.
There are several reasons for the recent rapid appreciation of gold. First of all, it is the rise observed in the financial markets and the fact that the majority of investment instruments are currently becoming more expensive. Second, market participants are preparing for the upcoming Fed interest rate cut this year, which could affect the US dollar. value, therefore diverting funds away from money market instruments. The third reason could be the increased geopolitical risks in the world and the need for a so-called safe haven.
There have already been situations in history where stocks and gold went up at the same time. One of them was recorded before the Global Financial Crisis when an inflationary spiral took hold, and the second was observed during the pandemic, when a large amount of money was poured into the economy. Therefore, the appreciation of gold and stocks may indicate a certain overheating in the financial markets, the premonitions of a correction and the desire of investors to protect themselves from it.
Three rate cuts are expected in the US this year
Representatives of the Federal Reserve Bank (FED) continue to mention three interest rate cuts of 25 basis points each expected this year. They have also started to reduce their bond holdings more slowly, indicating that they are not worried about the higher inflation they have been recording recently.
During the last meeting, they unanimously agreed to keep the base interest rate in the target range of 5.25-5.5 percent. in the cut. It is planned to cut interest rates three times this year and extend the same reduction cycle next year.
Updated in 2024 Forecasts for inflation and economic growth in the US range from 2.4 to 2.6 percent, respectively. and from 1.4 to 2.1 percent. The unemployment rate forecast reduces by 0.1 percent. point – up to 4 percent.
Clearance of shares of technology leaders
Silicon Valley founders and CEOs are selling their holdings at the fastest pace in a year, as hype over artificial intelligence has lifted US tech stocks to record highs, according to an analysis published by the Financial Times.
For example, tech market veteran Peter Thiel sold $175 million. USD value data analytics company Palantir shares. At that time, Mark Zuckerberg sold Meta shares for 135 million in February. USD It was the largest amount of shares he sold since 2021. the end
Amazon founder Jeff Bezos cashed in a whopping $8.5 billion this year. USD worth of shares, although it is likely that in this way Mr. Bezos moved some of his wealth to the tax-friendly state of Florida. Amazon CEO Andy Jassy sold about 21 million units this year. USD shares, or about as much as in the last two years combined.
It’s true that record valuations for technology companies have breathed life into the IPO market. Social media company Reddit finally made its IPO last Friday, and its stock ended its first day of trading up nearly 50 percent. at a higher price level. Another AI-related start-up, chipmaker Astera Labs, was marked by a nearly 2-fold increase in its share price on its IPO.
Until Friday, March 29. over the two-week period, the Dow Jones gained 2.6 percent, the S&P 500 gained 2 percent, and the Nasdaq Composite gained 1.7 percent.
The ECB interest rate cut is likely already in June
The latest forecasts from the European Central Bank (ECB) expect lower inflation, especially in 2024, which is mainly influenced by lower energy prices. It is now forecast that inflation in the euro area in 2024 will reach 2.3 percent, in 2025 – 2 percent, and in 2026 – 1.9 percent Inflation forecasts, excluding energy and food, were also cut to 2024. will make up 2.6 percent, in 2025 – 2.1 percent, and in 2026 – 2 percent
The ECB also reduced the 2024 economic growth forecast – only 0.6 percent is expected in the euro zone. growth this year. Economic activity should pick up in 2025. up to 1.5 percent and in 2026 up to 1.6 percent
ECB President Christine Lagarde has said the central bank may cut interest rates in the near future. True, by that time it is expected to receive wage data, the growth of which until now has led to pressure on prices. Swedbank economists predict that the ECB’s first interest rate cut of 25 basis points should take place at the June meeting.
The largest economies of the euro zone are contracting
The economies of Germany and France, the eurozone’s two largest economies, continued to contract in March and may take longer to get back on track.
France’s private sector contracted slightly faster this month than in February, according to published S&P Global business surveys. Germany’s recession eased, but this was only due to the stagnant services sector.
Major German manufacturers again defied economists’ expectations for increased growth momentum, with the corresponding PMI falling from 42.5 in February to 41.6 in March.
At the time, the Swiss National Bank cut its key interest rate by 25 basis points, entering a new monetary policy cycle several months ahead of other central banks. Officials in Zurich cut the benchmark interest rate to 1.5 percent, the first such cut for one of the world’s 10 most traded currencies since the pandemic.
The European STOXX 600 stock index on Friday, March 29 1.7 percent ended trading in the two-week perspective. above, Germany’s DAX ended the period up 3.1 percent. above, the United Kingdom’s FTSE 100 index rose nearly 3 percent, while the Baltic OMX Baltic Benchmark ended two weeks of trading unchanged.
China aims for 5 percent. annual growth
China has set its annual economic growth target at around 5 percent, although Premier Li Qiang acknowledged challenges ahead. Beijing will also spend 1 trillion this year and the next few years. yuan (US$139 billion) of ultra-long-dated bonds, a sign of his efforts to centrally manage local debt.
China’s industrial production and investment in fixed assets in January-February. exceeded forecasts and grew by 7% respectively. and 4.2 percent Retail trade was in line with expectations, while real estate investment fell more than expected.
During the first two years of 2024 exports grew by 7.1 percent in US dollar terms and exceeded expectations. This could be a sign of recovering global demand.
A historic move by the Bank of Japan
Japan’s central bank raised its key interest rate from 0 to 0.1 percent for the first time in 17 years. and abandoned its yield curve control policy. Japan has become the last country in the world to end the era of negative base rates.
The latest data shows a solid recovery in Japan’s economy late last year, with economic output exceeding economic potential for the first time in four years. This indicates strong enough demand to fuel inflation and prompt the Bank of Japan to consider raising interest rates further.
Japan’s Nikkei rose 1.5 percent in the two-week period, while China’s blue chips CSI 300 fell 2 percent over the period, while Hong Kong’s Hang Seng fell 1.1 percent.
Rising demand for oil is putting pressure on prices
It is predicted that once the FED starts reducing interest rates, the price of oil could exceed the now usual 70-90 US dollars. for a barrel of rye. China’s drive to boost production and Europe’s desire to rebuild inventories suggest that commodity prices, particularly oil and copper, may start to rise.
Goldman Sachs predicts that raw material prices may increase by about 15 percent this year. as borrowing costs fall, manufacturing recovers and geopolitical risks persist.
At the same time, the world is consuming more oil than ever, and demand is once again exceeding expectations, so the question is how quickly the oil markets will react.
Brent crude futures were trading up 1 percent in the two-week outlook. at a higher level and reached 87 US dollars. per barrel. The US WTI oil price increased by 1.2 percent. up to USD 83 during the Friday session. The price of gold increased by 3.2 percent. up to $2,229 per ounce.
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