04/06/2024 - 08:07 UTCThe U.S. dollar keeps losing ground against other majors, with the dollar index (USDX) posting another 0.51% decline on Monday and continues to decline early on Tuesday hitting lows last seen in April. The move came following data that indicates a second straight month of slowdown in manufacturing activity and an unexpected decline in construction spending. These signs of weakness in the U.S. economy seem to have boosted the case for earlier Federal Reserve interest rate cuts.
Even though inflation data still shows price pressures remain above the Fed's 2% target, the CME Fedwatch shows that bets for the first-rate reduction to take place in September rose significantly from 45.1% to 52% while November bets went up from 46.3% to 48.2%.
Negative sentiment persists on the energy front, with the two main benchmarks WTI and Brent declining by 3.53% and 3.30% respectively. The move was partly attributed to a weak global demand outlook as well as the outcome of the latest OPEC+ meeting where it was decided to extend the current production curbs through 2025, though they mentioned that voluntary cuts would be gradually reduced after the third quarter.
The main US stock market indices continue to gain on Monday following indications of softening in the US economy raising hopes that the long awaited rate cuts from the Fed could come sooner than anticipated. In corporate news, Advanced Micro Devices Inc fell more than 2% even as the chipmaker unveil new artificial intelligence chips, while rival NVIDIA was up more than 4% after revealing its next generation superchips to succeed its current blackwell chips.
For Tuesday, some price action is expected upon the release of the JOLTS Job Openings report, while later on US factory orders and weekly inventories by the American Petroleum Institute are due.
The EUR/USD pair posted major gains on Monday ending the session 0.50% higher. The major currency pair strengthened after the United States Institute of Supply Management (ISM) reported that the Manufacturing PMI surprisingly dropped to 48.7 from the estimates of 49.8 and the former release of 49.2.
The CME FedWatch tool shows that the probability of a rate cut by the Fed in the September meeting has increased from a week ago. Market speculation for the Fed reducing interest rates in September improved after the Personal Consumption Expenditures Price Index (PCE) report showed on Friday.
Final German unemployment figures for May are due today, and Tuesday’s US market session will follow up with US Factory Orders and JOLTS Job Openings.
Gold prices rose on Monday as weaker-than-expected U.S. economic data cemented expectations that the Federal Reserve would cut in
Data showed U.S. manufacturing activity slowed for a second straight month in May, and U.S. construction spending fell unexpectedly for a second consecutive month in April on declines in non-residential activity.
The dollar fell to a three-week low against its rivals, making gold more attractive for other currency holders, while Benchmark U.S. Treasury yields fell to a two-week low after soft manufacturing data.
Oil prices settled sharply lower Monday, as OPEC and its allies' decision to extend output cuts into 2025, but also phase out the cuts later beginning later this year stoked worries about a supply surplus.
The Organization of the Petroleum Exporting Countries and its allies including Russia, known as OPEC+, decided to extend its ongoing output cuts of roughly 5.86 million barrels per day well into 2025. The decision to extend cuts will likely keep demand and supply in balance in the near term, but the move to begin phasing out production cuts from Q3 this year, could pose problems in 2025.
U.S. stocks were mixed after the close on Monday, as gains in the Technology, Healthcare and Consumer Services sectors led shares higher while losses in the Oil & Gas, Utilities and Industrials sectors led shares lower.
U.S. main indexes posted a mixed picture on Monday with US 30 ending the session lower led by a slump in energy stocks on falling oil prices and weaker manufacturing data pointing to a slowing in the economy.
Markets had weighed data showing U.S. manufacturing activity had slowed for the second straight month, raising concerns of weakening economic growth.
Investors will be eyeing a data-packed week that includes surveys on the services sector, factory orders and Friday's closely watched nonfarm payrolls report, which could provide clues to the Fed's likely course of action with regards to rates.
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