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General Market Analysis 03/04/2024

Stocks Tumble Again – Nasdaq Down 1%

A sell-off in European stocks made its way across the Atlantic where a data fuelled surge in Treasury yields saw US indexes post their worst decline in a month as investors took money off the table while this current bond rout finds a floor. The dollar eased against all G-10 peers but was largely sidelined while stocks and bonds locked horns amid speculation that major central banks will keep interest rates higher for longer.

The Dow Jones and Nasdaq indexes both closed 1% lower on the day to 39170 and 16240 respectively while the S&P 500 index fell 0.7% to 5206. Dollar-yen was little changed at 151.61. AUD/USD (Aussie) +0.5% to 0.6518 and USD/NOK -1.1% to 10.8385 (Norway’s krone) outperformed other major currencies as gold and oil climbed. The US 10-year Treasury yield at 4.35%, pushed as high as 4.40%, and up 20 basis points from late last week.

Data Pushes Back Fed Rate Cuts Further

Better-than-estimated data on US job openings and factory goods orders further raised doubts about the pace of Federal Reserve easing. Traders now projecting fewer rate cuts than the Fed itself. 10-year yields hitting the highest levels in 2024 was something that couldn’t be ignored by investors who had been shrugging central bank repricing over the last few months while the FOMO rally in stocks powered higher.

As market await comments from Fed Chair Jerome Powell later today other Fed officials had their say. Fed Bank of San Francisco President Mary Daly said three rate cuts is still a reasonable expectation for 2024 — though there’s no urgency to make adjustments at the moment. Cleveland’s Loretta Mester said she wants to see more evidence that inflation is headed lower before cutting interest rates but noted recent figures have generally aligned with her expectation for slower progress on price growth.

The latest job-openings data (JOLTS) ahead of Friday’s non-farm payroll data suggest labour demand is stabilizing at an elevated level. If March NFP surprises to the upside again then the Fed probably have their soft landing, perhaps even too soft. Markets might be feeling the latter and accordingly are currently projecting only about 65 basis points of rate reductions this year, less than the 75 basis points signalled in the Fed’s latest “dot plot” forecasts with many seeing the first cut coming in the 2nd half of the year.

Geopolitics Push Oil and Gold Higher Again

Oil futures breached $85 for the first time since October, the latest milestone in a rally driven geopolitically by Iran vowing revenge on Israel for an airstrike on its embassy in Syria that killed a top military commander. Also prolonged production cuts from OPEC+ are expected to be retained when the cartel meets later today. Adding to oil’s bid is Chinese manufacturing data that’s showing more than green shoots for the world’s largest oil importer. West Texas Intermediate added 1.7% to $85.42 in New York, while the global Brent benchmark also rose 2.1% to $89.25 a barrel.

The US data prompted bullion to pull back slightly from its record high of $2,281.15 an ounce earlier Tuesday, reached after an Israeli airstrike on Iran’s embassy in Syria bolstered gold’s appeal for investors seeking a haven from increasing geopolitical risks. Silver added over 4.2% to $26.14 as investors who may have missed out on the bullion move look for the next best thing.

For today’s diary Japan and China services PMI; Eurozone CPI and unemployment data with US ADP employment and ISM services rounding out the main economic releases while Fed Chair Jerome Powell headlines Fed speakers.

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