Weekly Overview of Global Markets

Market Review and Outlook

Weekly performance of major asset classes: Gold> US Stocks> Hong Kong Stocks> US Dollar> Japanese Stocks> US Bonds> Crude Oil

Stocks: Last week was a positive one for the US stock market, with the S&P 500 continuing its upward trajectory and reaching new historic highs. Value stocks outperformed growth stocks. T. Rowe Price traders noted that trading volumes were particularly low for most of the week, and Wednesday was the year's lowest trading day so far. Despite significant fluctuations in some individual stocks due to Q1 earnings releases, the overall economic calendar was quiet, resulting in a predictably peaceful trading week. Notably, Walt Disney's (NYSE: DIS) stock took a significant hit, dropping by 9.5% on Tuesday, despite exceeding profit expectations. The company warned of possible slowing growth in its online streaming business. Similarly, predictions of revenue growth slowdown for online retail platform Shopify (NYSE: SHOP) caused a significant drop in their stock price, falling by 18.6% on Wednesday.

Although higher interest rates and delayed rate cut expectations usually harm US stock valuations, the past three weeks have seen a relatively strong performance in the US stock market. The S&P 500 has continued to rise, approaching its historic high, and the better-than-expected earnings season has contributed to the US stock market's rebound. Approximately 90% of S&P 500 companies have already reported Q1 earnings, with profits up 5.5% from last year. Earnings have exceeded analyst expectations by approximately 8.5%, the highest level since Q3 2021. Communication services, non-essential consumer goods, and technology have stood out from an industry perspective due to their strong growth, while artificial intelligence remains a hot topic, benefiting the stock prices of large tech companies and the "big seven." The Q1 earnings and company guidance for the S&P 500 have further increased people's confidence, and it is anticipated that profits will grow by more than 10% in 2024.

Bonds: The decline in yields since May has been a welcome relief for the market, and last week's one-week high for the 10-year US Treasury yield was preceded by a brief six-month high of 4.7%. However, the yield fell back to below 4.5%, which was a positive development for investors. T. Rowe Price traders observed that new trades in the bond market have been in high demand from both retail and institutional buyers, despite a large volume of first-time issuances. Tax-exempt municipal bonds rose alongside US Treasuries for most of last week, indicating a positive outlook for the market. Moreover, new trades in the investment-grade corporate market also showed healthy oversubscription levels. The stock market's rise has also contributed to an improvement in sentiment in the high-yield bond market, which is a positive sign for investors.

Gold: The attractiveness of gold prices has recently declined due to signals that the Middle East is moving away from a potential all-out war, which resulted in a drop in gold prices. However, as investors weighed the complex signals of the US economy and the Middle East situation underwent further changes, gold prices rebounded again last week. In addition, the People's Bank of China continued to increase its gold reserves, purchasing 60,000 troy ounces in April, which marked the 18th consecutive month of gold purchases. Currently, the recent resistance levels for gold prices are at $2,340/oz and $2,375/oz.

Note: The weekly performance of major asset classes is ranked based on the weekly change in the asset class as shown in the table above, with ">" indicating the ranking from highest to lowest. US bonds are ranked based on the change in futures prices. Past returns do not guarantee future returns.

Data source: Bloomberg. Date as of May 10th, 2024

Weekly Hot Topic

Is there still value in investing in gold after its recent pullback?

With the recent pullback in gold prices, many investors are questioning whether now is the time to invest in the precious metal and whether it presents an opportunity or a risk. To address these concerns, we must first examine the factors that have fueled the increase in gold prices this year.

What are the reasons for gold hitting an all-time high in 2024?

Geopolitical tensions have been a significant driver of the rise in gold prices this year. While gold is often considered a hedge against inflation, it can also provide a hedge against chaos and uncertainty, such as war. As a result, the tension in the Middle East has had a notable impact on the price of gold.

In addition, expectations for rate cuts due to economic slowdown have been positive catalysts for gold prices. Typically, higher interest rates are unfavorable for gold because it does not pay interest. However, the Federal Reserve's dovish rhetoric since stopping rate hikes in 2023, combined with the market's optimistic expectations for rate cuts, have been favorable for gold prices.

Central bank gold purchases have also contributed to the rise in gold prices, with Q1 2024 seeing the strongest start on record for central bank demand for gold, with China being the largest buyer. Central bank reserves reflect the need for hedging against rising global risks and weakening US credit.

Finally, physical investment demand has been a driving factor in the rise of gold prices. As gold prices rise, some investors begin buying gold, further pushing up the metal's price. According to data from the World Gold Council, physical investment demand has noticeably shifted higher in the past three years, which may have a boosting effect on gold prices. For example, US supermarket Costco sold over $100 million worth of gold bars in Q4 2023.

Gold prices still have a basis for further increase in 2024

As the US economy continues to show resilience in terms of inflation and employment, the market predicts that the Federal Reserve will delay interest rate cuts, causing a significant pullback in gold prices. Investors are seizing the opportunity to sell gold ETFs, with a $61 billion ETF rising by 13% this year. However, commodity spot prices have begun declining since April 15th, causing the fund to lose $2.92 billion of investor funds as of April 26th.

As we enter May, US employment data suggests signs of an economic slowdown, reigniting interest in rate cuts and causing gold prices to rebound. The question remains whether this is a short-term increase or a representation of long-term investment value.

To make this judgment, we can examine two factors. Firstly, in terms of central bank reserves, the People's Bank of China expanded its gold reserves for the 18th consecutive month in April, increasing its gold reserves by 1.87 tons to a total of 2,264.3 tons. Goldman Sachs has noted that central banks are often long-term strategic buyers, and emerging market central banks have been driving the current gold craze. However, emerging market institutions still have a long way to go in terms of their gold purchasing plans, with the amount of gold held in reserves by emerging market central banks currently only half that of developed markets.

Secondly, from a geopolitical perspective, gold is expected to continue benefiting from geopolitical risk premiums, as a series of chain crises have brought significant uncertainty, volatility, and fragility to the market.

Expectations of interest rate cuts by the Federal Reserve remain the primary driving force behind the bullish sentiment towards gold. Although there are signs that the economy may be slowing down, the timing of the Federal Reserve's interest rate cuts remains uncertain.

On a global scale, the Swiss National Bank has already initiated interest rate cuts, and with the expectations of rate cuts by the Bank of England and the European Central Bank increasing, the world may enter a significant easing cycle. Therefore, analysts at DailyForex believe that gold should still be attractive. Analysts note that it may be more challenging than before, but gold prices are moving towards the $2,400 level, and the current consolidation and digestion of gains since March are meaningful.

Important Events Outlook for This Week

Consumer Price Index (CPI)

This week, the focus is on two key economic indicators - the Consumer Price Index (CPI) and retail sales data. Despite making significant progress since the inflation rate peaked at 9.1% in June 2022, the current rate has not yet reached the Federal Reserve's target of 2%. Earlier this year, unexpected increases in inflation shook confidence in its potential cooling, making the upcoming CPI release on Wednesday all the more important. Market expectations for the overall CPI predict a decrease from 3.5% to 3.4%, while the core CPI, which excludes food and energy, is expected to decrease from 3.8% to 3.6%. All eyes will be on these figures as they are released.