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Good sentiment on the markets is reflected in high levels of stock indices
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Good sentiment on the markets is reflected in high levels of stock indices

created OANDA TMS Brokers20 May 2024

Last Friday, Wall Street indexes experienced little volatility and remained within historically high levels. The Dow Jones rose by 0,3%. and exceeded the level of 40 thousand. points, SP500 closed the day in positive territory with a result of +0,1%. Only the technological Nasdaq100 fell by 0,1%. In Europe DAX was discounted by 0,2%.

The EUR/USD rate has practically not changed. While U.S. stocks lost steam last Thursday and Friday, they rallied sharply during the week. Last week's inflation readings from the US turned out to be slightly lower and retail sales disappointed, which has fueled investor optimism that the Fed will cut interest rates this year.

This morning gold sets a new maximum level of approximately USD 2450/oz.

The Fed needs to be patient

Many Fed officials reiterated last week that the institution will need to be patient and leave interest rates higher for an extended period of time as inflation continues to persist in the economy. Powell has made clear that he thinks the Fed will need more data to assess whether inflation is steadily falling toward its 2% target. Michelle Bowman was quite hawkish when she said that expects inflation to remain at an elevated level and repeated that it does not rule out raising the cost of money if necessary.

Fed Funds Futures are currently pricing in 10 percent chances of reducing interest rates in June in the USA. A more realistic date is September and then December. Everything indicates that the Fed's recent forecasts of three cuts this year will not be fully realized.

Good moods in the markets

Still good mood on the markets, reflected in high levels of stock indices and simultaneous price increases main currency pair (which is mainly due to the weakness of USD) make the zloty still strong. The EUR/PLN exchange rate is currently within horizontal support, which results from the minimums set around April 10 this year. The USD/PLN pair is currently struggling with the level of 3,91. In this case breaking this ceiling may open the way towards 3,8850 – the bottom from the end of December 2023. However, key technical barriers pose a risk of price correction, at least in the short term.

This week the macro calendar will be moderately full of key items. The PMIs for Europe and the USA come to the fore. Here, the amount of improvement in the European industry seems to be particularly important. In the context of the ECB's June decision, the market will certainly want to evaluate the publication on the negotiated wage index for the first quarter of this year. The minutes from the last FOMC meeting are unlikely to bring anything groundbreaking and will probably confirm that the time for cuts has passed compared to the assumptions made a few months ago.

Source: Łukasz Zembik, OANDA TMS Brokers

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