25 March 2024 - FTMO

Weekly market recap

Your weekly global financial market newsletter

  • The Bank of Japan has finally abolished negative interest rates after almost a decade. Going back even further, the BOJ has not raised rates in almost 17 years. Negative interest rates were intended to stimulate the stagnant Japanese economy over the past eight years or so. At the same time, the BOJ will lift the yield curve controls that ensured monetary policy remained accommodative by keeping the 10-year bond yields low. The BOJ is also abandoning purchases of risky assets such as ETFs and REITs, while limiting purchases of commercial paper and corporate bonds.
  • The decision marks the end of the global era of cheap money that began in 2010 and was used in Europe and Japan. The Bank of Japan was the last remaining holdout, with policymakers treating the recent price increases as imported from elsewhere, but that stance has now formally ended.
  • The BOJ has tried to limit the market reaction by announcing its intentions well in advance, but the Nikkei 225 index has still appreciated significantly and has already added 19% since the start of the year. However, central bankers are clearly convinced that the threat of deflation has passed and any rate hikes in the medium term are likely to be gradual.

Indices

US stocks did not maintain the week’s pace on Friday, but eventually returned to growth after two weeks of declines. The main reason for optimism was the fact that the Federal Reserve would cut rates three times this year. The Dow Jones approached the 40,000-point level, and the S&P 500 and Nasdaq then surpassed their all-time highs again thanks to one of the best weekly results.

Also in Europe, central banks influenced market sentiment as the Bank of England opted to maintain interest rates but hinted at potential future reductions, whereas the Swiss National Bank surprised with a rate cut. The pan-European STOXX Europe 600 Index ended near a record high, climbing 1.03, Germany’s DAX gained 1.35%, France’s CAC 40 Index fell 0.17% and the UK’s FTSE 100 surged 2.70%.

US30
+1.97%
US100
+2.98%
US500
+2.29%
GER30
+1.35%

Commodities

The oil price has had a rather volatile week. Earlier in the week, oil strengthened significantly and reached its highest level since October thanks to limited exports from Saudi Arabia and Iraq. Indications of strengthening demand and economic growth in China and the US also helped the price rise. However, prices came under pressure late in the week due to both a strengthening US dollar and a possible ceasefire in Gaza. However, the US proposal was vetoed by Russia and China late in the week.

The gold price reached all-time highs during the week after central banks in the US and Europe announced their intention to cut interest rates several times before the end of the year. However, a strengthening US dollar eventually halted the rise in the price of the yellow metal.

Gold
+0.44%
Silver
-1.99%
BRENT
+0.28%
NATGAS
-0.54%

Forex

The dollar index hit three-week highs at the end of the week, reaching 104.5, and except for Wednesday, it kept strengthening virtually all week. Wednesday’s announcement by the Fed that it plans three interest rate cuts this year saw the value of the US dollar fall to 103.2. However, Thursday’s surprise rate cut by the Swiss National Bank due to the strong franc changed investor sentiment on the dollar. However, a dovish view from the Bank of England or some ECB officials and speculation of a possible earlier rate cut by other central banks than the Fed’s helped the dollar continue its strong run.

EUR/USD
-0.75%
USD/JPY
+1.61%
GBP/USD
-1.08%
USD/CAD
+0.48%

Macro

The past-week’s main driver of sentiment appeared to be the Fed’s policy meeting concluding on Wednesday. Policymakers left the federal funds rate unchanged at 5.25-5.50%, the highest level in 22 years, as expected. The Monetary Policy Committee kept interest rates unchanged for the fifth consecutive session, but still expects to cut the key rate by at least 0.75 percentage points this year. Overall, the FOMC meeting confirmed that the Fed is still looking for a turn in monetary policy, but at the same time does not want to rush that turn. Jerome Powell indicated that he was not overly concerned about the uptick in inflation data in January and February.

Other data  supported hopes that the economy was continuing to expand without reigniting inflation pressures. February existing home sales, reported Thursday surprised most observers by jumping 9.5%. Preliminary March purchasing managers’ indices fell back a bit from February’s reading but surprised investors by indicating a second consecutive month of expansion.

The Swiss central bank unexpectedly cut its key interest rate by a quarter of a percentage point to 1.50%, becoming the first major central bank to ease its tight monetary policy introduced in an attempt to curb inflation. The Swiss franc reacted to the bank’s decision by falling sharply.

The Bank of England Governor Andrew Bailey signalled an imminent rate cut, but the Bank of England left the base rate at 5.25%, a 15-year high, as expected.

As expected, the Bank of Japan was the last central bank in the world to abandon its policy of negative interest rates. It raised the base rate for the first time in 17 years, from -0.1% to a range of 0 to 0.1%. The Bank of Japan also abandoned a policy known as yield curve control.

What to watch out for this week

  • In the United States, attention will be focused on the PCE price index. This is likely to show relatively strong month-on-month growth for February. March and April inflation will be key for the US Federal Reserve to cut interest rates in June.
  • Also important will be speeches by several Fed officials including Chair Powell drawing significant investor attention. Other key data points include durable goods orders, the final Q4 GDP growth reading, CB consumer confidence and housing market indicators such as new and pending home sales.
  • This week will be a weak one in terms of economic data in Europe due to the Easter holidays, as all major stock exchanges will be closed on Good Friday and Easter Monday. In the UK, the focus will be on the final Q4 GDP growth figures.
  • Other data to be released include: business sentiment and final consumer confidence in the Eurozone, GfK consumer confidence, retail sales, and the unemployment rate in Germany.
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