ECB expected to further reduce its rates

The global financial markets have been quite unstable lately due to recent changes in the US trade policies.

Concerns were raised when President Donald Trump announced new tariffs, particularly on automakers.

Last week, investors faced tough times after the US decided to impose tariffs on automakers, which worsened when the US significantly increased these tariffs. China quickly responded with its own measures.

As the events unfolded, it led to major losses in the stock market, with trillions of US dollars disappearing in what could be recorded as one of the largest drops ever.

Oil prices also fell, as fears grew about a potential slowdown in the global economy, which would reduce demand.

US bonds, usually seen as a safe investment, faced pressure as their value dropped.

Initially, gold prices decreased due to panic selling, but last week I wrote that the fundamentals for gold have not changed. While as the prices were falling, gold became more appealing.

There were also rumours circulating that China must be discreetly reducing its US Treasury bonds.

According to January’s Federal Reserve data, China holds approximately $ 760 billion in US Treasury bonds, making it the second-largest holder after Japan, which has nearly $ 1 trillion.

If it is true that China has quietly offloaded about 5% of its holdings, this could be significant, but we will only know for sure after April’s data is released.

The market can’t overlook the fact that bond yields are indicating higher inflation because of tariffs.

In my opinion, if this is true then the Federal Reserve may decide to take some action by reducing the auction size, which would help stabilise prices unless China continues selling US debt.

There could be a possibility that because of this some of the money would have been redirected towards buying oil gold, which has pushed prices higher.

However, the market is still hopeful for a resolution between the US and China, as both countries have been standing firm on their positions.

The 90-day pause on reciprocal tariffs has given the 57 trading partners time to negotiate.

Until the end of this period, there will be a 10% tariff in place, but the 25% tariff on automobiles, steel, and aluminum remains.

This 90-days pause has allowed the market to stabilise somewhat, aiding in the recovery of risk assets and stock markets. If Trump decides to give exemptions, it could help improve the current situation.

Nevertheless, uncertainty in the financial markets has caused the US Dollar to decline, reaching its lowest point of 2022. Most G-10 currencies, including the Swiss Franc, Euro, and British Pound, have seen gains, with the Japanese Yen and a few others showing notable increases as well.

The weakness of the USD can also be attributed to an unexpected decrease in the US Producer Price Index (PPI) for March, which fell by -0.4% instead of the anticipated 0.2% increase month-over-month.

Additionally, demand from the services sector has also diminished. Earlier data on core inflation in the US indicated signs of moderation.

Evidently, last week’s inflation figures demonstrated a slowdown, and economic growth has been weaker than anticipated.

With this week shortened by Good Friday, the market’s attention will continue to be on tariff-related matters and the release of economic data.

Another significant development on the economic front will be the European Central Bank’s upcoming decision on interest rates.

Due to declining inflation and sluggish growth, the ECB is expected to further reduce its rates.

So far this year, the Euro has appreciated by nearly 7%, which supports the case for a rate cut.

Market uncertainty will stick around until we have more clarity on tariffs. As a result, economic issues will take a backseat for now.

WEEKLY OUTLOOK - April 14-18

#GOLD @ $ 3236.50- This week, gold is anticipated to fluctuate in a broader range due to persisting trade and tariff issues. We may witness a correction at some stage, but buyers, similar to last week, are likely to enter the market again since the fundamentals remain unchanged.

This week, initially we could see additional gains. However, the critical level to watch is $ 3278. If that level is breached, gold could surge towards the $ 3325-30 range. Nonetheless, I cannot dismiss the possibility of a correction. A drop below $ 3150-60 would open the door for a test of the $ 3050-70 range

#EURO @ 1.1360-Euro has the potential for further appreciation, but it must surpass the 1.1450-80 range, otherwise, it may weaken. Conversely, if it drops below 1.1225, it could head toward 1.1150.

#GBP @ 1.3080-Pond Sterling is anticipated to remain above 1.2945-55. To move higher, it must achieve a definitive break above 1.3190 to target 1.3250. Or else 1.2880.

#JPY @ 143.51-USD/YEN could be heading for another volatile week. If USD can’t surpass 144.80, it risks hitting new lows. There is support at 141.80. A break below this level could lead to a test of 140.

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