JASPER’S MARKET SQUAWK 24-03-2023

Tech Leads, Banks Strain

Tech led markets higher on Thursday in a volatile session, with the majority of traders now seeing the Fed pausing at the next meeting, while markets are pricing in rate cuts as soon as the summer despite Fed Chair’s remarks during the FOMC presser. The banking sector continued to weigh on sentiment, with initial stock gains somewhat paired after First Republic shares fell back into the red.

Chart: XAUUSD

Key Factors for Today

• Tech stocks led an early Thursday rally, but banks weigh on market
• Futures market suggest a pause in a rate hike in May
• Gold climbs back to 2k as yields continue to drop
• Cable touched a 7-week high after BOE hike, but reversed
• ECB officials can’t agree on policy, with traders turning to consumer data
• Australia’s PMI falls into contraction for the first time in 3 years

Gold Retrieves its Shine on Lower Yields

The 2-year yield dropped 15bps on Thursday, and the 10-year ended the day 9bps lower at 3.406%, as the futures market now price in a 60% pause in May. Stocks ended higher despite having an impressive rally earlier in the session as participants still try to digest the dovish hike on Wednesday. Gold was the clear winner, gaining 1.22% to $1993 per ounce after tapping the 2k ceiling again.

Cable at 7-week High After BOE Hike

The vote split was 7-2 vs pausing the MPC showed, with Tenreyro and Dhingra dissenting. The ban reiterated its stance to hike more if inflation remained high but forecasted inflation falling sharply over the year. Cable rose to a 7-week high of $1.2343 before reversing nearly all gains to $1.2287. $1.2261 is a crucial short-term base.

ECB Officials at Odds, EUR/USD Impacted by Consumer Data

ECB’s Ignazio Visco (Italy) said that inflation expectations were anchored and that monetary tightening already had an effect. He reiterated calls for a cautious approach to monetary policy decisions. Meanwhile, ECB’s Klaas Knot (Netherlands) said the bank was still working on hikes but needed to say how big the next one would be. The March advance reading for EU consumer confidence came in at -19.2 compared to the -18.2 expected, possibly responsible for EUR/USD reversal from $1.0933 to $1.0828 and a red Thursday for the European currency. Losing $1.0805 might open the door to $1.0761.

Australian PMI Falls into Contraction

The first look at Australia’s Manufacturing PMI showed a fall into contraction for the first time in 3 years, coming in at 48.7 compared to 50.4 expected and 50.5 prior, as analysts speculate the ongoing financial chaos in the world impacted the result. Aussie traded as high as 1% up to $0.6754 early before returning to the open to close a second consecutive session in range. This morning and following the PMI, it seems unmoved near $0.6685.

On The Docket

• UK retail sales
• EU S&P PMIs
• UK S&P PMIs
• US S&P PMIs
• Canada retail sales
• Durable goods
• Fed Bullard speech
• BOE Mann speech
• EC meeting

Fx 1-Day Relative Performance (USD)

• Japanese yen 0.45% higher
• Pound and loonie are nearly unchanged
• Kiwi and euro 0.18% lower and 0.07%
• Aussie and swissy 0.08% down
• Gold and silver 0.14% and 0.03%, down
• Crude and brent 0.12% lower
• Natural gas is up by 0.32%