Market News

Risk Assets Searching for Direction

May 8, 2024

Risk assets began the week in good spirits, with investors still cheering the comments from Jerome Powell (Federal Reserve Chairman) which diminished the chances of a rate hike, as well as the sub-par US jobs figures from Friday. The Powell comments and the NFP (Non-Farm Payrolls) figures essentially combined to get financial markets focused once again on future rate cuts rather than potential hikes.

However the light economic calendar this week has allowed ‘Fed Speak’ to take centre stage, and what we have heard so far (such as from the Minneapolis Fed President) is that we are not yet on the cusp of having rates cut and that the Fed is in no hurry to start easing policy. So, this thin economic calendar and a reminder from Fed officials that rate cuts are not likely to be imminent is leaving markets searching for direction somewhat at the mid-week point.  

In FX, the USD climbed despite treasury yields sliding, with the Dollar Index (DXY) holding above the 105 level. Another round of yen weakness has assisted both the USD and the broader Dollar Index. The USDJPY rate has been edging higher in recent sessions, with ‘yen bears’ thinking there is some further room to run on the topside before we get to the key 160 level which seems to be of particular interest to Japanese officials from an intervention perspective. The USDJPY rate was last seen trading around the 154.90 level during Asian trading hours on Wednesday.

Gold made a positive start to the week with the precious metal reclaiming the $2300 handle thanks to soft US jobs data and diminished rate hike chances, however upside momentum has slowed in part due to the buying flows into the USD. The fall in bond yields would usually be a boon for the gold price however this is being countered by a move higher in the greenback. As such, gold is consolidating around current levels with the next upside move likely reserved for if and when the USD comes off the boil. In the near-term, resistance levels await gold at $2327 and $2340, while support is seen at $2298 on the low side.

Ceasefire talks have taken some inbuilt risk-premium away from the oil price, with the WTI contract trading below the $80 per barrel mark. While no ceasefire agreement has yet been reached, the fact that talks are ongoing hints at an easing of tensions and therefore an easing of supply risks to the energy market, which is why oil is trading at near 2-month lows. Though the nature of the conflict means that the situation and indeed the oil price could flare up again at any time. For WTI oil, support awaits at $76.95 while resistance lies at $80.05.  

Upcoming this week is the Bank of England (BOE) monetary policy decision on Thursday, and while a hold of rates at 5.25% is expected, the attention will be on what clues if any the central bank gives on when interest rate relief could arrive. Any signs that central banks such as the BOE are starting to lean towards a rate-cutting environment could be a positive for risk assets

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