In the name of God, the most gracious, the most merciful
And prayers and peace be upon the most honorable of the prophets and messengers, our master Muhammad and his family and all his companions
As the markets stopped due to the holidays, no strong effects were shown from the issuance of the US employment data, and we do not expect any surprises as a reaction at the beginning of this week’s trading, as I expect that the holiday will make investors absorb this data and analyze its components sufficiently as possible to make the market movements more rational.
The focus becomes on the new equation, in which there are influences on inflation, namely the crisis of the American and European banking sectors, and fears of an increase in energy prices after OPEC + decisions with voluntary cuts amounting to 1.66 million b/d. And the degree of impact of all of the above on the Fed’s policies to fight inflation
Attached is a comprehensive and comprehensive photo report of the most important events and their impact on the markets
US data gives negative signals
Employment data shows that the US labor market has begun to lose some of its strength. Some may be surprised that the talk is about the necessity of weakening the labor market and increasing unemployment because it has become a matter required by the Federal Reserve to achieve a soft recession so that it can combat inflation by weakening demand and its purchasing power. A role in the increase and rise in prices in the United States of America
An increase in weekly unemployment benefits, a decline in the services sector, and the continuation of resignations may lose some strength, but there is another effect that was not taken into account that has increased fears of a return to the acceleration of inflation in the United States of America, which is the increase in energy prices.
The markets are preparing after returning from vacations and vacations and awaiting the release of consumer price index data, which reflects US inflation rates. This statement is very important, as it will have a major role in determining the Federal Reserve’s plan for monetary policy. Therefore, it is expected that if the data is issued less than the current expectations of 5.2%, then this claims To reassure the markets that inflation has begun to decline, and perhaps the Fed will tend to stabilize the interest rate or raise it at slow rates, which may push the dollar further down, but if the statement is higher than expectations, then this would make the markets feel that inflation has returned to acceleration and the markets will start pricing in the possibility of raising interest rates for periods. longer to curb inflation, and this will be reflected in a strong rise in the US dollar, but if the statement was issued with the same expectations, we will find a continued decline.
basic equation
We have inflation, which is the main source of annoyance for the Fed, which it is focused on fighting and achieving its target of 2%.
The Fed continued to raise interest rates rapidly before slowing down its monetary policy tightening since March 2022 until it rose from 0.25% to 5%.
Here, the markets began to price when the Fed will stop the tightening policy operations after increasing fears of a strong economic recession and its shift to the accommodative policy in order to support the economy and economic growth and lift the economy from recession fears.
The equation changed
However, that equation changed in March 2023, in which the Silicon Valley Bank and other American banks collapsed, affected by the tightening policy, which affected the value of the bonds, as well as the grants and loans that were provided to the emerging technology companies that were funded by those banks, and the transmission of infection to European banks, which resulted in large withdrawals. From American and European banks, and the wavering of confidence from the two appointments towards the banking sector, which increased the recovery of the cash theory and its conversion in the form of gold or cryptocurrencies.
However, the first meeting of the US Federal Reserve to set the interest rate was a diplomatic decision and raised it as the market expected by 25 basis points. The Fed took advantage of the banking crisis to continue fighting inflation by tightening control over credit operations as an alternative to raising interest rates… while the markets are waiting. Strongly and (carefully) any developments in the banking sector crisis, which may increase the crisis of confidence of depositors in banks and thus will greatly help in the collapse of risk appetite and its tendency to safe havens such as silver or use as digital assets that are safer than American banks.
The economy is starting to see a rise in delinquency rates in commercial real estate, auto loan repayments and credit card payments.
But the equation changed with a new event
The return of fears of accelerating inflation on the part of rising energy prices after the step taken by OPEC + with a voluntary cut of 1.66 million b/d, starting from May 2023 until the end of the year as a precautionary measure to support the stability of oil prices, with increasing expectations of a global economic recession that will affect global demand for oil. Oil, therefore, was one of the main reasons behind this move by OPEC +
St. Louis Federal Reserve Chairman James Bullard said that the sharp rise in the aftermath of OPEC’s announcement to cut production could make the task of fighting inflation more difficult for the Fed.
interest forecast
The Fed’s monitoring tool revealed an increase in the tendency to raise interest rates at the next Fed meeting on May 3, after OPEC’s decision to release US employment data, to rise from 58.8% to 65.5%. While the percentage of those who expect interest rates to be fixed decreased from 41.2% to 34.5%.
Confidence risk shaken
Risk appetite may decline for several reasons:
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Increased fears of an economic recession
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The vibration of depositors in the banking sector, which makes the banking sector continue to decline in the American markets
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Banks are working to lend to emerging companies, and the banking crisis will affect those companies, especially technological ones, and therefore will affect the technology sector and small companies
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It will affect further declines in the US stock markets
Gold and cryptocurrencies are the biggest beneficiaries
Gold and cryptocurrencies are the biggest beneficiaries.. Why?
Fears of an economic recession are increasing with the shaking of confidence deposited in the banking and banking system continuing with the continuation of inflation and its stay with us will be for a longer period with new developments, which directs risks to safe havens such as gold and silver and also some will see that cryptocurrencies have become safer than holding the US dollar, but rather Some have come to see cryptocurrency and its decentralization as an added advantage
In addition, central banks are increasing their reserves of gold, as global gold reserves increased by 52 tons last February for the 11th month in a row.
The Sun also announced the purchase of 18 tons of gold to strengthen its competition with the US dollar last March, bringing the total Chinese reserves of gold to 2068 tons, and it is expected that China will continue to build its official gold reserves in the framework of building the credibility of the Chinese yuan in light of its competition. The US dollar as the global reserve currency.
Conclusion:
Given that inflation is likely to remain the largest driver of the Fed’s monetary policy, it is unlikely that markets will price an early turn to lower rates or a faster pace of interest rate cuts.
The OPEC + move with a voluntary cut of up to 1.66 million b/d contributes to the fact that inflation will remain the biggest driver of the Fed’s monetary policy decisions, and it is unlikely that the markets may price the Fed’s policy shift to low interest rates.
The expected rise in oil prices will make inflation persist for a longer period and may force the Federal Reserve and global central banks to impose additional interest rate increases or delay interest rate cuts.
The biggest beneficiary in the coming period will be gold and cryptocurrencies, and the loser will be the US markets and the stock and bond markets, so it is expected that risk appetite will tend to safe havens
I am pleased to receive your opinions, inquiries and comments on the report
Wish you all the best
Dr.. Muhammad Al-Ghobari
Free of charge, the financial analyst, Muhammad Ghabari, provides you with glimpses of the best methods of technical analysis, its most famous models, and how to read charts, in a free seminar (Webinar) on April 13 at 10:00 pm Riyadh time. All you have to do is register here
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