The Federal Reserve’s Rate decision is here, but investors will focus more on the central bank’s forward guidance. This week, the market again shows a “risk off” sentiment as global stocks decline and Gold increases to its highest price since April 14th. Yesterday's stock market released positive earnings reports, this time from Starbucks and Pfizer. However, the stock market continued to decline as the market’s risk profile worsened. Many economists advise investors to be cautious about purchasing global stocks above the yearly high.
Yesterday, the US Dollar began the day with strong bullish price movement, pushing the price onto a new weekly high. However, the price significantly declined as we edged closer to the European session and after Europe’s inflation data. Investors also continue to tread cautiously due to the banking liquidity crisis. More regional bank stocks decline, including the KBW Regional Bank index and the PacWest Bancorp. The recent declines across the banking sector are a concern for investors. The US Dollar declines against all main currencies, and the Japanese Yen retraces against most currencies.
One of the most substantial price movements seen within the market was for Gold, which took advantage of the weakening Dollar. The price of Gold increased by more than 1.50% as we approached the opening of the US trading session.
XAU/USD - Gold Sores Amid Market Caution
The price of Gold broke above the $2,009.50 resistance level, which has been a strong psychological level for investors over the past 3-weeks. Gold is supported by expectations of a possible recession in the US economy against the backdrop of new alarming signals regarding the country's banking sector. The commodity was also supported by the weakening Dollar and many central banks increasing their reverses in gold.
One of the reasons why Gold is experiencing bullish price movement is because markets are expecting the Central Bank only to hike 0.25% and then voice a pause. However, whether the price of Gold is further supported will depend on the bank’s forward guidance. If the regulator provides hawkish guidance for future monetary policy, the price of Gold may experience a different trend. Investors will also be monitoring the Chairmen’s comments on the banking crisis. Economists have advised that if regional banks continue to fail, it can trigger a run on nationwide banks and cause a larger liquidity crisis. Lower market confidence can trigger more robust demand for Gold, which is known as a safe-haven asset and an alternative for hedging against inflation.
Economic data from yesterday also assisted Gold in maintaining a higher price. The JOLTS Job Opening read lower than 10 million for the second consecutive month and lower than the previous month. This supports other economic data that the US economy and employment sector are indeed decelerating at the least. The job opening’s figure was the lowest since the first “lockdowns” in 2021.
According to the US Commodity Futures Trading Commission, the speculative positions within the US continue to favour a declining Gold price. However, the number of long positions being closed is larger than the buy positions being closed.
Nonetheless, the price of Gold this morning has slightly declined but still obtains bullish signals from most trend-based indicators. The price also gets a divergence signal on oscillators, indicating that the price may form a retracement but not a stronger downward trend. However, this will depend on the order flow and economic data throughout the rest of the week, specifically the Fed’s rate decision.
SNP500 - Fed Rate Decision Looms
The global stock market has come under pressure from concerns about a liquidity crisis in the banking sector and the risks of a recession. Nonetheless, earning reports continue to show positive figures. Starbucks and Pfizer both reported earnings and revenue higher than expectations. Pfizer’s revenue data read 10% higher than the market expected, and earnings were 20% higher. However, both companies voiced concern for the next two quarters, which caused prices to decline outside trading hours. Tonight’s interest rate decision will most likely influence the stock market. A hawkish Fed can further pressure stocks.
When looking at technical analysis, the instrument obtains indications of a bullish retracement but not an upward trend. Oscillators indicate a downward trend as the price forms lower lows and convergence. The SNP500 will largely be influenced over the next 24 hours by the market’s risk sentiment, the Fed’s forward guidance, and Apple’s earning report release tomorrow. This morning, European stocks rose, which is a relief for US investors hoping to experience an improved trading day.
Summary:
- Gold increased to its highest price since April 14th as the US Dollar weakened and recession risks weighed.
- US banking sector stocks come under pressure, and global stock markets decline. European equities rise in the futures markets and as European trading markets open.
- Markets expect the Federal Reserve to increase interest rates by 0.25% and indicate a pause. However, investors will focus on the chairmen’s comments on the banking sector.
- Starbucks and Pfizer both reported earnings and revenue higher than expectations.
