Major Wall Street indices reversed course and turned lower after trading higher earlier in the session on Monday. This comes amid expectations of an early rate cut by the Federal Reserve after the latest set of data showed signs of easing inflation.
The report boosted bets on a rate cut, with money markets pricing in a 66% chance of at least a 25 basis point cut in June, up from 55% a day before the data was released, according to the US Interest Rate Monitor tool available on the Investing Saudi website.
Federal Reserve Chairman Jerome Powell said on Friday that the latest US inflation data was “consistent with what we want to see” – comments that seemed to keep the central bank’s baseline expectations for rate cuts this year intact.
The S&P 500 had risen more than 10% in the first three months of the year, its biggest gain since 2019. Gains on Wall Street were driven by optimism about artificial intelligence, strong earnings, and hopes for a soft landing, where inflation slows without causing an economic slowdown.
However, the yield on the benchmark 10-year US Treasury note rose to 4.3032%, its highest level in a week. On the data front, the Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) for March came in at 50.3, above expectations of 48.5 and the previous reading of 47.8.
The Dow Jones Industrial Average is now down 0.68% to 39,535 points. The S&P 500 is now down 0.38% to 5,234 points. At the same time, the Nasdaq is now down 0.11% to 16,361 points.
Gold Continues to Rise, Approaching New Record High. Gold prices are trading near a record high set in the previous session, with the dollar and Treasury yields holding steady after strong US data raised doubts about whether the Fed will cut rates three times this year.
Gold hit a new record high, although the rally came amid overbought conditions, leading to a slight pullback. However, recent pullbacks in gold have been shallow as potential buyers on the sidelines await entry.
Gold and the Dollar Now
Gold futures are now up 0.9% to $2278 an ounce. Spot gold is up 0.3% to $2258 an ounce. It is trading near its all-time high of $2265.49 set on Monday. On the other hand, the dollar index is holding steady at 104.785 points.
Other Metals
Silver is up 1.1% to $25.37 an ounce. Platinum is up 0.6% to $907.45. Palladium is up 1.2% to $1,008.44.
Euro Deepens Losses to Two-Month Low on Interest Rate Gap
The euro fell in the European market on Tuesday against a basket of global currencies, deepening its losses for the second consecutive day against the US dollar, hitting a two-month low, due to concerns about the widening current gap in interest rates between Europe and the United States.
Markets have become more convinced about the possibility of the European Central Bank cutting interest rates in June. To reassess those possibilities, investors are looking forward to data on inflation levels in some major European countries today, ahead of the release of key inflation data for the whole of Europe tomorrow.
Interest Rate Gap
The interest rate gap between Europe and the United States is currently at 100 basis points, the lowest since May 2022. It is expected to widen to 125 basis points in June in favor of US interest rates, amid the current possibilities surrounding the future of interest rates for the European Central Bank and the Federal Reserve.
European Interest Rates
Less hawkish comments from most European policymakers have boosted the European Central Bank’s move to ease monetary policy and cut interest rates starting at its June meeting. Markets are now pricing in 90 basis points of rate cuts this year.
Oil Rises on Optimistic Manufacturing Data and Rising Middle East Tensions
Oil prices rose in early Asian trading on Tuesday, supported by signs of improving demand and rising Middle East tensions that sparked a rally in US futures to a five-month high in the previous session.
Chinese manufacturing activity expanded in March for the first time in six months, and in the United States for the first time in a year and a half, which markets saw as a sign of rising demand for oil. China is the world’s largest importer of crude oil, while the United States is the largest consumer.
In the Middle East, an Israeli strike on the Iranian embassy in Syria killed seven military advisers, including three senior commanders, marking an escalation in the nearly six-month conflict and raising concerns about further tangible impacts on oil supplies.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) is holding an online meeting of its Joint Ministerial Monitoring Committee on Wednesday to review market implementation and members’ production cuts.
Members are expected to stick to the current supply policy, which calls for a voluntary production cut of 2.2 million barrels per day until the end of the second quarter. June Brent crude futures rose 37 cents to $87.79 a barrel. US West Texas Intermediate crude futures for May rose 32 cents to $84.03 a barrel.
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