On hold, not cancelled

Market report Michael Blumenroth – 02.02.2024

Weekly Market Report

By and large, the decisive data point of the week – and possibly of the entire month of January – 2024 happened at Wednesday evening’s Fed meeting. After all, hardly any other question gets market observers’ adrenaline pumping as much as the question of the Fed interest rate turnaround this year and at what speed it will push ahead.

Fed: March interest rate cut unlikely

In the run-up to the meeting, many market players had already determined the start of the easing cycle would be set at the next meeting on 20 March. A rather ambitious expectation and, in my opinion, an unlikely scenario. The Fed confirmed this assessment, hinting in their statement, or rather Governor Jerome Powell in the subsequent press conference, that interest rates have peaked and rate cuts are indeed likely this year, partly due to falling inflation. However, Powell considers a first interest rate cut in March unlikely. In response to a question, Powell said: “Based on the meeting today, I would tell you that I don’t think it’s likely that the Committee will reach a level of confidence by the time of the March meeting to identify March is the time to do that” (i.e. inflation will move sustainably toward two per cent).  However, he did concede that further declines in inflation rates could push the timeframe forward to the meeting on 20 March – thus not entirely ruling out a March rate cut. 

Investors seek safe havens 

On Wall Street, the S&P 500 dropped 1.6 per cent following the meeting, its most significant decline since September. Although interest rate cuts had already become less likely in March, yields on government bonds fell, more due to the growing risk aversion on the financial markets by the middle of the week. The US dollar also benefited from its reputation as a supposed safe haven.

Gold was also in demand as a safe haven over the course of the week and benefited from lower capital market interest rates. Last Friday, the precious metal traded at 2,021 US$ per ounce in the morning and dropping to a weekly low of 2,016 in the afternoon of the same day. It started an upward trend on Monday with considerable intraday volatility, rising to 2,065 yesterday afternoon. At the start of trading today, gold traded lower, at 2,056 US$ per ounce. 

Xetra-Gold records slight weekly gain

The same applies to Xetra-Gold, whose price rose steadily from 60.10 € per gram on Friday morning last week and 59.65 on Friday afternoon to 61.05 yesterday. Following a moderate recovery of the euro against the US dollar and a somewhat more risk-averse mood after the publication of convincing quarterly data from some major US tech companies, Xetra-Gold once again headed south. It was expected to start trading this morning slightly lower at around 60.75 € per gram. 

The coming week does not hold any major highlights in terms of economic data. However, the markets will continue to focus on expectations regarding monetary policy, particularly in the US. In China, the Year of the Dragon begins next weekend – usually a good year for the financial markets there, but only time will tell.
For scheduling reasons, my next report will be published the week after next. I wish all readers a relaxing and fun-filled weekend.
 

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