Since the beginning of this year, the global economic recovery has driven up the prices of major commodities such as oil, gold, and silver, with some commodity prices soaring to levels not seen in many years.
Since April, due to factors such as the expectation of the Federal Reserve's interest rate cut and geopolitical conflicts, commodities led by gold have emerged from a magnificent market trend. COMEX June gold futures and London spot gold both exceeded $2300 per ounce this week, setting a new historical high. The US oil market has also continued to rise, with oil prices rising above the $90 mark for the first time in five months.
In sharp contrast to the sharp rise in gold and crude oil, the US stock market has performed poorly since its opening in April, which is due to market concerns about the resurgence of inflation. The ISM manufacturing PMI has exceeded 50 for the first time in 16 months, the unexpected surge in non farm employment in March, and the decline in unemployment rate have also posed challenges for the Federal Reserve: whether to cut interest rates or not?
When it comes to the recent performance of the US stock market and other issues, the team led by Shamik Dhar, Chief Economist of Bank of Mellon in New York, pointed out in an email to a reporter from the Daily Economic News that the main downside risk is a second wave of inflation, which may lead to unexpected monetary policy tightening again.
Federal Reserve Chairman Powell strengthened the prospect of interest rate cuts this week to ease market concerns. However, several senior Federal Reserve officials spoke out the next day, and some even pointed out that there may not even be a rate cut this year. After the release of the March non farm payroll data, the "Federal Reserve Watch" tool of the ChiNext showed that as of the time of publication, the futures market's bet on the Federal Reserve's June interest rate cut had decreased from around 63% before the release of the non farm payroll data to 50.8%.
Gold broke through the high of $2300 for the first time, and after 5 months of oil distribution, it reached $90
Since the beginning of this year, the global gold price has continued to rise. In March, the cumulative price of gold futures in New York rose 9.8%, marking the largest monthly increase in over three years.
Entering April, gold prices have repeatedly hit historic highs: on April 1st, London spot gold and COMEX gold reached the levels of $2260 and $2280 respectively; On April 3rd, COMEX reported a June gold futures price of 2315.0 US dollars per ounce, setting a new closing record high for the fifth consecutive trading day; On April 4th, spot gold also exceeded $2300 per ounce; On April 5th, spot gold broke through the $2330/ounce mark after a brief decline, and COMEX gold futures stood at $2350/ounce.
Bloomberg
Driven by the continuous surge in gold, global commodity futures have also risen one after another. According to Wind data, COMEX silver rose as high as 10.77% this week, while LME zinc rose 7.5% this week. LME nickel and LME copper rose by over 5% on a weekly basis.
Every drawing
The reason why gold prices can soar significantly is supported by various factors, including increased expectations of interest rate cuts from the Federal Reserve, intensified geopolitical conflicts in the Middle East, and continuous increases in gold holdings by multiple central banks.
However, a reporter from the Daily Economic News noticed that despite the frequent record highs in gold prices, the global holdings of gold ETFs continue to decline. According to data compiled by ING, as of April 4th, the holdings of gold ETFs have dropped from 856000 ounces at the beginning of this year to around 820000 ounces. ING believes that there is still a lot of buying space for gold at present, but investors may need to wait until the Federal Reserve truly starts cutting interest rates before they flock to buy it.
According to a research report by Dongwu Securities, the bull market in gold is not over, but the sustainability of the upward trend is facing a test due to the reliance on grand narratives and unattractive holding returns. If we refer to the historical experience of gold breaking below $1000/ounce in 2009, $2400/ounce may be an important resistance level.
The changes in the Middle East situation are also profoundly affecting the performance of the crude oil market. Moreover, on the same day, OPEC+also decided to maintain its current production reduction plan, which foreshadows future market supply shortages.
WTI crude oil has risen 4.5% this week to $86.91 per barrel, while crude oil has risen 4.22% to $91.17 per barrel, marking the first time in five months that crude oil has risen above the $90 mark. Next, the focus of market attention will shift to the OPEC+ministerial meeting held in June, and whether the production reduction plan will be extended to the second half of the year will be the key to whether oil prices can break through the triple digits.
An article published on the official website of Zhishang Exchange on April 5th stated that due to recent attacks involving major oil producing countries, geopolitical events are affecting crude oil supply. In the short term, the attention of the crude oil market remains focused on the tense situation in the Middle East. International oil prices will remain high and volatile next week. If the geopolitical situation continues to deteriorate, there is a possibility of further upward movement. It is expected that the mainstream operating range of WTI is 83-88 US dollars per barrel, and Brent's mainstream operating range is 86-92 US dollars per barrel.
Rebecca Babin, senior energy trader at CIBC Private Wealth US, believes that the escalation of tensions between Iran and Ukraine, coupled with OPEC+confirmation that production cuts will continue until June, has driven up the gains. Babin also stated that although the outlook for the next few months is positive, downside risks include the possibility of OPEC+restoring some production, weakened demand, and lower than expected Fed rate cuts.
The US stock market is sluggish, and the downside risk is the second wave of inflation
In contrast to the outstanding performance of commodities, the US stock market performed poorly at the beginning of April. In the past month, the overall performance of the US stock market has continued to be strong: the Dow Jones Industrial Average has risen 2.08%, the Nasdaq has risen 1.79%, and the S&P 500 index has risen 3.1%.
This week, the Dow Jones Industrial Average fell continuously for the first four days, with both the S&P 500 and Nasdaq closing lower for three days, and all three major indexes closing higher on Friday. The Dow Jones Industrial Average fell 2.27%, marking the largest weekly decline since the collapse of Silicon Valley Bank on March 10, 2023; The Nasdaq has fallen by 0.8% for two consecutive weeks; The S&P fell 0.95%, marking the second largest weekly decline of the year after the first week of the new year, and the fifth week of decline in the first 14 weeks of the year.
Every drawing
In response to the sluggish performance of the US stock market since the beginning of the second quarter, the team led by Shamik Dhar, Chief Economist of Bank of Mellon in New York, pointed out in an email to a reporter from the Daily Economic News that as US inflation slows down, the US stock market has lost some appeal. However, we expect that US stock earnings growth will begin to support a rebound, but the expansion of valuations may be limited by rising interest rates. Dhar believes that the main downside risk is a second wave of inflation (we estimate a probability of 20%), which may lead to unexpected monetary policy tightening again.
Behind the decline of the US stock market, it is actually market concerns about the resurgence of US inflation and weakened expectations for interest rate cuts.
The Institute for Supply Management (ISM) manufacturing PMI for March in the United States, announced earlier this week, reached 50.3, far exceeding economists' expectations of 48.4, surpassing the critical boom bust line of 50 for the first time in 16 months.
On April 5th, the US Bureau of Labor Statistics released data showing a surge of 303000 new non farm jobs in March, the largest increase since May last year, exceeding the expectations of all analysts. In addition, the unemployment rate in March slightly decreased from 3.9% in February to 3.8%, which is in line with expectations. At this point, the unemployment rate has remained below 4% for 26 consecutive months, setting the longest record since the late 1960s. According to the Phillips Curve theory, the decline in the US unemployment rate indicates that the Federal Reserve's efforts to combat inflation are still ongoing.
The Federal Reserve is in a dilemma: cutting interest rates or raising them?
The expansion of the manufacturing industry, the unexpected surge in non farm payroll in March, and the decline in unemployment all indicate that the labor market is still active, seemingly providing support for the view that the Federal Reserve is not in a hurry to cut interest rates.
According to Brian Coulton, Chief Economist at Fitch Ratings, in a comment email sent to Economic Daily News reporters, "The strong growth in non farm employment in March indicates that labor demand growth has not slowed down. The average employment growth in the past three months was 276000, far above trend levels and pre pandemic levels. Currently, there is not much evidence to suggest that the labor market imbalance has improved, with the annualized three-month wage growth rate rising to 4.4%, the fastest growth rate since September last year. There is nothing in the non farm employment report to give the Federal Reserve 'more confidence' in the continued decline in inflation."
Federal Reserve Chairman Powell attempted to ease concerns this week that signs of inflation rebounding may suppress the potential for interest rate cuts this year. However, several senior Federal Reserve officials subsequently spoke out, believing that current US inflation is still too high and that the Federal Reserve needs to see more progress in inflation before cutting rates, and is not in a hurry to do so. In March, Minneapolis Fed Chairman Kashkali, who was expected to cut interest rates twice this year, believed that the Fed may not even cut rates this year.
After the release of the March non farm payroll data, the "Federal Reserve Watch" tool of the ChiNext showed that as of the time of publication, the futures market's bet on the Federal Reserve's June interest rate cut had decreased from around 63% before the release of the non farm payroll data to 50.8%. The expected total number of interest rate cuts this year is still 4, consistent with the release of non-agricultural data.
Zhishang Institute
Zhishang Institute
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