The new week began with increased risk appetite in the financial markets amid expectations that central banks are nearing the peak of interest rate hikes. Financial markets are eagerly awaiting data that could be very significant this week.
The European Central Bank, Bank of England, and the US Federal Reserve all exhibited less monetary tightening poliies than before in their recent meetings.
The Federal Reserve indicated uncertainty about the future of interest rates but provided clear signals that there would be no interest rate cuts this year.
In general, the Federal Reserve Chair linked the future of interest rates to upcoming economic data. Similarly, both the President of the Federal Reserve of Chicago and the President of the Federal Reserve of Atlanta emphasized the importance of monitoring the data.
As a result, market traders have been closely watching economic data, monitoring how it could impact their expectations for interest rates.
Last Friday, the job data was released, causing the US dollar to decrease. Despite showing a decrease in unemployment to 3.5% from 3.6%, it revealed the lowest number of jobs created since January 2021.
The data indicated an addition of 185,000 and 187,000 jobs in the non-farm sectors of the United States in the past two months.
This data led the markets to believe that the Federal Reserve has already reached the peak of interest rates, and that there will be no further interest rate hikes.
As a result, we witnessed an increase in risk appetite in the financial markets, and many stock indices and their futures rose.
Financial market performance with an increase in risk appetite
Several key stock indices rose during today’s Asian session, including a 0.19% increase in the Japanese Nikkei index and a 0.03% increase in the Hang Seng index.
As for the U.S. stock index futures, we observe a 0.38% increase in Dow Jones futures.
Similarly, Standard & Poor’s (S&P) 500 futures rose by about 0.47%, and Nasdaq futures gained around 0.60%.
In Europe, despite a sluggish opening for some stock indices, we note a return to gains due to increased risk appetite in the markets.
The French CAC index rose by about 0.08%.
In currency markets, after the U.S. dollar declined by around 0.5% against a basket of major currencies last Friday , it is attempting to rise today. The halt in interest rate hikes may not be limited to the U.S. Federal Reserve; it could also extend to the European Central Bank, as well as the Bank of England. Other central banks may also stop raising interest rates, including the Reserve Bank of Australia and the Reserve Bank of New Zealand.
The euro decreased against the U.S. dollar today and is trading within the range of $1.09.
Similarly, the pound declined, trading within the range of $1.27.
Regarding the Japanese yen, we observe its stability against the U.S. dollar within the range of 142 yen per U.S. dollar.
In the precious metals markets, we see prices declining today amid increased risk appetite in the markets.
The price of gold declined, trading within the range of $1930 to $1940 per ounce at the moment.
Likewise, silver traded lower within the range of $23 per ounce.
The increase in risk appetite also affected oil prices, which remain relatively high despite some declines today
Brent crude oil futures were trading within the range of $86 before returning to $85 per barrel – their highest since this past April.
Recently, West Texas Intermediate (WTI) crude oil futures also rose to $82.
The possibility of the United States avoiding a recession is one of the reasons for the increase in risk appetite
JPMorgan Chase raised its forecasts for U.S. economic growth, attributing it to the swift resolution of the debt ceiling issue.
JPMorgan Chase thus joined the likes of Goldman Sachs, Morgan Stanley, and Bank of America in their expectations of the U.S. economy not slipping into a recession this year.
These forecasts boosted confidence in financial markets and increased risk appetite, resulting in the rise of several stock indices.
Numerous economic data releases this week could impact the markets.
Monday: We will have statements from members of the U.S. Federal Reserve, including Harker and also Bowman, along with the U.S. Consumer Credit Index.
Tuesday: We will focus on the U.S., Canadian, and French trade balances, as well as the Chinese trade balance.
Wednesday: China’s Consumer Price Index (CPI) and Producer Price Index (PPI) data will be released. We will also look at inflation expectations from New Zealand. Additionally, Wednesday will feature a 10-year U.S. Treasury bond auction, closely monitored for its coverage and required yield due to this being the first auction of its kind since the U.S. credit rating was downgraded from AAA to AA+ by Fitch.
Thursday: This day could see a shift in Federal Reserve expectations if unexpected economic data is released. We anticipate the U.S. Consumer Price Index to rise from 3.0% to 3.3%, potentially marking the first inflation increase in 12 months. Core inflation readings based on the Consumer Price Index are also expected to decline from 4.8% to 4.7%. Additionally, U.S. weekly jobless claims data will be released along with statements from Barker – a Federal Reserve member. .
Friday: U.S. Producer Price Index data may be the market focus. Furthermore, on the same day, a report on consumer sentiment and inflation expectations from the University of Michigan will be issued.