11/09/2023 - 07:52 UTCThe U.S. dollar seems to be reversing early on Monday, following a quiet session on Friday where the dollar index (USDX) ended almost unchanged, right above the 105.0 mark. Data published in the last week has somewhat given the impression that the U.S. economy is performing very well, as the services sector unexpectedly gained steam in August while jobless claims hit their lowest level since February. According to CME’s Fedwatch tool the majority of investors anticipate that the Fed will keep rates steady when it meets later this month, but it is still unclear what the Fed might do later this year.
Energy prices were slightly higher on Friday, with WTI up by 0.67% while Brent gained by 0.80% for the day. Prices seem to have stabilized right below 10-month highs as top producers Saudi Arabia and Russia stated they will be extending their voluntary supply cuts to the end of the year while China, one of the world’s largest consumers of crude, remains in the spotlight, as investors try to assess how the latest stimulus measures will impact fuel demand. The International Energy Agency and the Organization of the Petroleum Exporting Countries are also due to release their monthly reports this week.
A mild recovery was seen in the main US stock indices on Friday, with the US 500 up by 0.12%, the US tech 100 rising by 0.12%, and the US 30 posting a mild 0.17% recovery. This move followed a week that was mostly on the negative side in terms of economic indicators, with investors now looking ahead to upcoming inflation data later this week. In addition, U.S. retail sales, business and retail inventories, import and export price indexes, the NY Empire State manufacturing index, industrial production, and preliminary Michigan consumer expectations and sentiment are also in the schedule.
On the eurozone front, the ECB meets on Thursday to announce its monetary policy statement, and investors are very uncertain of the outcome as price pressures remain elevated while data shows economic activity is now slowing sharply.
The EUR/USD pair ended the session almost unchanged on Friday but kept posting weekly losses for an eight consecutive week.
The upbeat US data last week might convince the Federal Reserve (Fed) to maintain the interest rate in the September meeting, but markets expected one more 25 basis point (bps) rate hike by the end of the year. Market participants will take more cues from the US Consumer Price Index (CPI) for August due on Wednesday.
On the other hand, the data released in Eurozone on Friday revealed that the German Harmonised Consumer Price Index (HICP) for August came in at 6.4% YoY, as the market expected whereas the core CPI remained unchanged at 6.1%.
Gold prices posted a weekly decline of 1.10% as the dollar and Treasury yields held firm with strong U.S economic data raising concerns of the Federal Reserve keeping interest rates higher for longer.
The dollar, is bounded for its longest weekly winning streak since 2014, propelled by recent strong U.S. economic data. The greenback’s overall strength put bullion on course for its first weekly dip in three. Focus is now on U.S. inflation readings due on Wednesday, and the Fed’s policy decision on September 20th.
Oil prices posted weekly gains for a second consecutive week ending the week 1.62% higher on the back of rising U.S. diesel futures and worries about tight oil supplies after Saudi Arabia and Russia extended supply cuts this week. This week, OPEC member Saudi Arabia and Russia extended their voluntary supply cuts of a combined 1.3 million barrels per day to the end of the year.
The oil market is still concerned about the demand outlook in China, which has had a sluggish post-pandemic recovery and stimulus pledges have fallen short of expectations. Oil traders are also watching whether central banks in the U.S. and Europe will keep fighting inflation with interest rate hikes.
U.S main indices posted minor gains on Friday, with US 500 and US 30 ending the session 0.12% and 0.17% respectively, while US Tech 100 posted minor gains of 0.12% but this was not enough to prevent a weekly loss as treasury yields racked up gains for the week amid fears that the Fed may have to persist with higher for longer rates.
Energy stocks led the market higher as oil prices continued to be buoyed by recent supply cut extensions by Saudi Arabia and Russia. Apple fell 6% for the week as worries about China-led demand weakness weighed ahead of the iPhone 15 launch next week.
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