Fundamental updates by Solid ECN

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March 2024: Food Prices Rise After 7-Month Drop​

In March 2024, the FAO Food Price Index climbed to 118.3 from the revised February figure of 117—the lowest point in three years. This increase, the first after seven months of consistent declines, was primarily driven by higher prices for vegetable oils, dairy, and meat. These increases more than made up for the lower prices of sugar and cereals.​

 

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Euro Stays Steady as Rate Cut Speculation Grows​

Solid ECN—The Euro remained steady at around $1.084, steering clear of the low $1.075 mark it hit on April 1st. The dollar saw a dip in anticipation of the jobs report this Friday. The financial community keeps an eye on monetary policy shifts, with Chair Powell noting that the recent inflation data hasn't significantly shifted the broader economic outlook. He indicated the likelihood of reducing the policy rate later in the year.

The ECB also pointed out the strengthening case for interest rate reductions, projecting a continued decrease in inflation rates. March saw Euro Area inflation drop to 2.4%, under the predicted 2.6%. PMIs were also adjusted to reflect growth in the private sector, ending ten months of decline. Despite the Euro's gains, there is anticipation for the ECB to implement four rate cuts this year, in contrast to the Fed's two or three.​

 

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EURUSD Steady at $1.08 as ECB Meeting Nears, Rate Cut Hints Awaited​

Solid ECN – The euro remained steady at about $1.08, with investors taking a careful stance as they awaited the European Central Bank (ECB) announcement on Thursday.

It's widely anticipated that ECB officials will keep interest rates at their current record highs for the sixth time in a row. The focus is now on how the statement is worded and what ECB President Lagarde might say in her press conference to hint at when the first interest rate decrease of the year could happen.

Recent documents from the ECB show that the officials are more confident about inflation moving towards their goal of 2%, which makes a strong argument for a reduction in interest rates. On the other hand, the US dollar kept getting support because the latest data showed the American job market is still doing well, indicating that the Federal Reserve might not hurry to lower interest rates soon.​

 

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Euro Stays Steady at $1.08 as ECB Decision Looms​

The euro stayed close to $1.08 as investors took a careful approach before the European Central Bank (ECB) shared its policy decision this Thursday. It's widely expected that ECB officials will keep interest rates at an all-time high for the sixth meeting in a row.

The focus now turns to the wording of the ECB's announcement and what ECB President Lagarde might say in her press conference, looking for hints about when the first rate decrease of the year might happen.

Recent ECB reports show a growing optimism among policymakers that inflation is on its way to hitting the 2% goal, supporting the argument for lower interest rates. At the same time, the dollar keeps getting support, as strong US labor market data hint that the Federal Reserve is not in a hurry to reduce interest rates soon.​

 

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Canada's 10-Year Bond Yield Hits New High Amid US Rate Changes​

Solid ECN – In April, Canada's 10-year government bond yield exceeded 3.7%, marking its highest point since the end of November. This increase was influenced by a significant jump in US Treasury yields following the Bank of Canada's (BoC) recent decision on interest rates. Despite this, the BoC kept its overnight rate steady at 5% and focused on reducing its balance sheet.

They also mentioned that rising energy costs might push inflation higher. Governor Macklem also highlighted that we shouldn't be too quick to assume recent drops in core inflation will last, pointing out the importance of making sure these aren't just temporary changes.

Additionally, the BoC is not in a rush to cut rates and has even raised its growth forecast for the year to 1.5% from the earlier prediction of 0.8%. Economists are predicting that the BoC might lower rates in June. Meanwhile, persistent inflation in the US has led investors to think that any rate cuts there could be postponed to between July and September.​

 

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Frankfurt's DAX 40 Dips as ECB Holds Rates, US Inflation Data Surprises​

Solid ECN – On Thursday, the DAX 40 index of Frankfurt saw a slight decrease of 0.2%, closing at 18,090 points. This happened right after the European Central Bank decided to keep its primary interest rates the same. The bank also mentioned it might lower rates if it looks like inflation is going to drop based on future projections. However, President Lagarde was clear that the ECB hasn't promised to follow a set path for interest rates, stating that any decisions will be based on upcoming data.

In the US, the situation looked a bit different. Reports showed that the growth in producer prices wasn't as strong as people thought it would be. However, the core index for the year was a bit higher than what was predicted. The day before, on Wednesday, unexpected high US CPI figures made people question if the Federal Reserve could reduce interest rates over the summer. This uncertainty makes it harder for the world's other big central banks to plan for easing.​

 

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EUR/USD Exchange Rate Forecast: Navigating Through Global Market Signals​

Solid ECN—The EUR/USD exchange rate might see some interesting moves this week, influenced by different factors in Europe and the United States.

The mood in Europe is somewhat positive as the stock markets, particularly the STOXX 50 index, increased by 0.6% on Monday. This increase happened because tensions in the Middle East seemed to calm down after Israel successfully defended itself against a major air attack from Iran. Additionally, the US has reassured everyone that it wants to avoid any more significant conflict in that region. These developments have made investors feel more secure, which is suitable for the markets.

On the business side in Europe, there were some mixed signals. Portugal’s GALP Energia saw its oil and gas production drop by 9% from the previous quarter, which might raise some concerns about energy supplies. However, there were also some big deals, like France's BNP Paribas buying a significant stake in Belgian insurer Ageas and Italy’s Prysmian acquiring Encore Wire for $4.2 billion. These moves could show confidence in European companies and might support the euro.

Over in the United States, investors are very focused on what the Federal Reserve will do next. There are speeches planned this week from Fed officials, and everyone wants to know how the central bank will deal with the tight job market and high inflation. If the Fed signals that it might raise interest rates to control inflation, it could strengthen the US dollar.

Overall, the EUR/USD exchange rate will likely react to how these situations develop. If the European economy shows more positive signs and the US Fed suggests strong measures against inflation, we could see some volatility and essential shifts in the exchange rate. It's a week where traders will need to keep a close eye on news from both sides of the Atlantic.​

 

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Bank of Japan's Strategy Affects USD/JPY Rates​

The USD/JPY currency pair has seen significant movement, with the Japanese yen depreciating to around 154 against the dollar, marking the weakest position in 34 years. This depreciation comes as the U.S. dollar strengthens, bolstered by persistent inflation in the United States that heightens expectations of prolonged high-interest rates by the Federal Reserve.

In contrast to the U.S., where the Federal Reserve might sustain its current interest rate levels due to inflation pressures, other major central banks are anticipated to begin reducing their rates soon. However, the Bank of Japan (BOJ) has taken a different route by maintaining a supportive monetary stance for an extended period. This includes continuing with lower rates and expansive monetary policies, even after Japan concluded its eight-year period of negative interest rates and scaled down its asset purchases.

Additionally, the BOJ has clearly stated it will not use rate hikes to bolster the yen. This stance was underscored by Japanese Finance Minister Shunichi Suzuki, who noted that the government is closely monitoring currency fluctuations and is ready to take necessary actions to stabilize the yen if necessary.

This situation puts the Japanese yen in a delicate position. The difference in monetary policies between the U.S. and Japan could potentially drive the USD/JPY pair even higher if the Federal Reserve decides to keep rates elevated longer than its global peers. As market dynamics evolve, traders and investors are advised to keep a close watch on policy announcements from the Federal Reserve and the Bank of Japan, which will be crucial in shaping the future trajectory of the USD/JPY exchange rates.​

 

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Canadian Bonds and Inflation Trends Amid US Fed Expectations​

Solid ECN – The Canadian 10-year government bond yield has stabilized at 3.78%, marking its peak since late November. This rate comes from heightened expectations for continued firm policies by the US Federal Reserve, juxtaposed with anticipations of a forthcoming rate cut by the Bank of Canada (BoC).

Recent statistics indicate a surprising twist in Canada's economic indicators. The domestic annual inflation rate for March registered at 2.9%, below the projected figures. Moreover, core inflation metrics, closely monitored by the BoC, dipped more significantly than anticipated, reinforcing the prospect of subdued foundational inflation within the Canadian economy.

Additionally, a recent uptick in the national unemployment rate and contractionary Purchasing Managers' Index (PMI) reports earlier this month influenced market sentiment. Consequently, nearly two-thirds of market analysts now foresee a potential rate reduction by the BoC in the upcoming June meeting. This expectation has provided substantial support to Canadian government bonds, curbing the potential for a more drastic selloff similar to that observed in US Treasuries.

This evolving landscape underscores a cautious optimism in Canadian financial markets as investors adjust their strategies in response to global economic pressures and localized fiscal policies. The bond market's response reflects broader economic signals and anticipates shifts in monetary policy that could impact yields and investment strategies moving forward.​

 

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Uranium Prices Surge Amid Supply Disruptions and Rising Demand​

Solid ECN – In April, uranium prices hovered around $90 per pound, close to the highest levels seen in a month. This surge in price is driven by a combination of high long-term demand for nuclear power and various challenges that threaten the immediate availability of nuclear fuel.

One significant factor contributing to the price increase is the growing interest from physical trusts in speculative buying. For example, the Sprott Physical Uranium Trust recently purchased 100,000 pounds of uranium oxide (U3O8), a move that encouraged further buying among other speculative investors.

Supply issues have also played a critical role in the rising prices. Recent events, such as the bridge's collapse in Baltimore, led to suspending operations at the city’s port, a key entry point for nuclear fuel. Additionally, sanctions on insurers have created bottlenecks for shipments of enriched uranium from Russia, compounding the supply challenges.

On the geopolitical front, there is heightened anticipation that the United States might impose sanctions on imports of Russian nuclear fuel following its decision to restrict base metal imports. This potential development has injected more uncertainty into the market, further fueling speculative activities.

Despite these supply-side pressures, the demand for nuclear energy is robust and growing. The United States and 20 other countries have announced ambitious plans to triple nuclear power capacity by 2050. China is particularly aggressive in its nuclear strategy, constructing 22 of the 58 reactors built worldwide.​

 

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Investors Eye US Data, CAC 40 Rises 0.4%​

The CAC 40, a key French stock index, increased by 0.4% to 8,012 points this Thursday. This rise came as investors evaluated comments from major central bank leaders and awaited new economic data from the United States. Mario Centeno, a European Central Bank (ECB) official, underlined the ECB's commitment to shaping its monetary policy based on regional needs instead of merely mimicking the U.S. approach. In the U.S., Federal Reserve Bank of Cleveland President Loretta Mester advised caution before making any cuts to interest rates.

Later today, the U.S. will release several economic updates, including the latest jobless claims. These figures are critical as they provide insights into the labor market's health, a key factor for U.S. monetary policy decisions.

On the stock market, Edendred stood out, with its shares jumping almost 5% after reporting a first-quarter profit increase of 18.8%, which exceeded expectations. Other notable companies like BNP Paribas, Pernod Ricard, Danone, Legrand, Veolia, ArcelorMittal, and Alstom also saw their stock prices climb, ranging from 1.2% to 2.6%.​

 

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ECB to Cut Rates as Euro Nears Five-Month Low​

Solid ECN—The euro is trading at about $1.065, close to its five-month low. This is due to the European Central Bank (ECB) and the Federal Reserve taking conflicting paths. On Tuesday, ECB President Lagarde announced plans to reduce interest rates soon, noting that geopolitical events have not significantly influenced commodity prices.

As a result, investors are expecting the first rate cut from the ECB in June, with two additional cuts planned before 2025. Meanwhile, Federal Reserve Chair Powell mentioned Tuesday that the U.S. might delay reducing its interest rates based on recent inflation trends. He indicated there isn't an urgent need to cut rates, suggesting that any reductions might not occur until late 2024.​

 

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EUR Nears $1.07 Amid Easing Middle East Tensions​

The euro moved closer to $1.07, recovering from a recent drop to its lowest point in over five months at $1.06 on April 16th. This change came as worries about increasing tensions in the Middle East began to ease. Investors also examined the differing attitudes of the European Central Bank (ECB), which is more cautious, and the Federal Reserve, which is more aggressive.

ECB officials indicated they might start lowering interest rates as early as June, with some predicting up to three rate cuts by the end of 2024. However, the overall market mood has slightly changed, with reduced expectations for rate decreases by both the ECB and the Federal Reserve. This shift is due to ongoing high inflation and signs of a strong economy in the US.​

 

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Oil Prices Dip as Middle East Tensions Ease​

Solid ECN – On Monday, the price of WTI crude oil dropped below $81 per barrel, hitting a four-week low. This decrease came as tensions in the Middle East seemed to lessen. Iran minimized the impact of recent Israeli strikes on its land and announced it would not retaliate. Despite this, the region remains under close watch by investors since Iran, a major oil producer in OPEC, mainly exports its oil to China and countries outside the US financial system.

In the US, Congress approved an aid package for Ukraine and Israel. This package might include sanctions against Iran’s oil industry, although the exact implications are still unclear. Global economic worries and the possibility that the US Federal Reserve might maintain higher interest rates for an extended period dampen the oil market outlook. Additionally, recent figures revealed a significant increase in US crude oil stocks, with a rise of 2.7 million barrels—almost twice what was anticipated.​

 

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April Boost in US Fifth District Manufacturing Index​

Solid ECN – The US Fifth District's composite manufacturing index improved in April, moving from -11 in March to -7. This rise was anticipated. During the same period, shipments and new orders increased, with shipments improving from -14 to -10 and new orders from -17 to -9. However, employment slightly decreased, changing from 0 to -2.

Additionally, there were continued reports of reduced backlogs and longer vendor lead times. Although these indicators showed some improvement, they remained below zero.

The capacity utilization index also significantly recovered, rising from -21 to -5. Moreover, there was a positive shift in sentiments about local business conditions, which moved from -1 to 6.

The growth rate of prices paid by firms decreased in April, while the rate at which prices received rose was marginal. Expectations for local business conditions are more optimistic, increasing from 12 to 16, indicating a promising outlook for shipments and new orders in the next six months.​