Hurdle of US$ 2,000 cleared

In the short trading week ahead of Easter, the topic of the week so far has clearly been the increasing signs pointing to a potential US recession. The publication of various economic data kicked off the new quarter and, regarding US economic development, almost unanimously caused long faces among market participants.

Weak US data

The ISM purchasing managers’ indices, much-noted leading indicators of medium-term economic development, particularly disappointed in the industrial sector (lowest level since May 2020, which had been marked by COVID) and for services (significant decline). In addition, data on factory orders (weaker than expected), the trade balance (wider deficit than expected) and private sector job openings (decline of more than 500k over the previous month) suggested that the land of opportunity might in fact be on the threshold of a recession.

The most immediate reaction to this data was once again evident in the bond markets. Yields on two-year US Treasuries dropped from 4.13 per cent on Monday morning to a low of 3.68 per cent yesterday afternoon. Interest rate futures markets yesterday priced in 0.95 percentage points of Fed rate cuts for the second half of the year, up from just 0.55 percentage points at the start of the week. In other words, market players are increasingly pricing in a US recession, as well as the Fed responding via rate cuts.

The spectre of stagflation

The situation could complicate further as the OPEC+ countries agreed last Sunday on significant cuts in oil production from the beginning of May, resulting in sharply rising oil prices and thus the risk of prolonged high inflation rates. Media outlets revisited the spectre of stagflation, an anaemic development of the economy with persistently high inflation rates. While the US dollar had originally depreciated, it was once again sought yesterday as a safe haven.

Gold in US dollars at 12-month high yesterday

Gold also saw steady demand this week. From 1,980 US$ per ounce on Friday morning last week, it dropped to 1,950 at the start of trading in Asia on Monday morning, after yields and the US dollar had initially risen significantly due to the OPEC+ decision. As a result of the increasingly risk-averse sentiment following the US economic data, prices reversed relatively quickly. On Tuesday, the precious metal jumped from 1,980 to 2,023 US$ per ounce within a short period and hit a 12-month high of 2,032 yesterday afternoon. This morning at 8:00, gold traded slightly weaker at around 2,014.

The Xetra-Gold price also gained week-on-week. From 58.40 € per gram on Friday morning and 58.10 early Monday, it rose to 59.65 yesterday afternoon. This morning, Xetra-Gold was expected to start trading at around 59.40.

On Good Friday, US labour market data is set to be published despite the holiday, and it is likely to cause market movements on Monday at the latest (not a US bank holiday). Next week’s data highlight: US consumer price data, scheduled for publication on Wednesday. 

I wish all readers a happy Easter weekend.