Weekly Outlook

Weekly Market Overview: Nothing Matters, only Jerome Powell’s Comments

| 18 November, 2024 at 12:00 GMT

      What did the Fed Chair Powell exactly say? Jerome Powell, Federal Reserve chairman said last week that that the Fed is in no rush to cut the rates. Such a statement from one of the most powerful central bankers in the World is a bullish statement, that’s why USD index – DXY gained more than 1%, US equity indexes, mainly Nasdaq lost more than -2% last week as higher rates for longer will not be the best scenario for risk- appetite’s assets that include the tech sector. Nasdaq dropped last week by    -2.6%m SPX -1.95% & Dow Jones -1.95%. It is important to say that the Fed chair & members are unlikely to confirm the dates of the next rate cuts or any modification in the Fed’s forward guidance, simply because the Fed was & will remain data-dependent, devoting accommodative monetary policy.  

     Seven week-rally in USD index that traded higher on Monday at 106.70, two-year high, is this rally sustainable?  and the other big question: will Trump tolerate the strong USD? Trump said before that the strength of USD minimizes the trade margin America could have vs the other trading partners & competitors including Europe- EUR, China- CNY and Japan – Yen. The strength & resilience of the US economy, higher yields on USD than other advanced economies’ currencies, not to forget that Trump’s domestic policies may support the demand for USD. In the meantime, there is no better alternative to USD right now which means that the demand for USD in the short-term will remain intact. USD index gained 5.2% YTD, increase by 4.4% vs EUR, 1% against GBP & 10% vs Yen. Such a strength in USD is unlikely to be exposed to huge correction, at least for now. Remember that currency dynamics don’t necessarily reflect the economic fundamentals. Chart: Tradingview

     Trump’s first term was actually not much positive on USD index that fell from 102.74 (January 2017) to 90 (January 2021) which means that USD index dropped by more than 12%. FYI, EURUSD traded at $1.22 (January 2021). So, yes, the fundamentals still favor USD, internally & globally (demand for USD-denominated assets) but that’s not the only consideration when the traders bet. 

  According to Goldman Sachs, gold will rally to a record in next year on central banks buying and US interest rates cuts in the US, Goldman still targets $3000 per ounce by December 2025. Chart: Bloomberg 

   Fundamentally speaking, gold is still up by 25.6% YTD, 31% YoY, and the average of the returns on gold was 9.3% in USD, between 2000 to 2023, which means that the performance was impressive. Such a performance will make gold one of the most preferred assets to protect the value of the money against the rising inflation and preserve the purchasing power of the investors & consumers. In 2017, return on gold was 13%, 2018/ -1.5%, 2019 / 18.3% and 2020 / 25%.  Short-term challenges remain intact including China’s weakening CPI, strong USD, Trump’s momentum and high US bond yields that make the yields more favorable than gold (real yields = yields minus inflation).