While the European Central Bank (ECB) may be compelled to raise interest rates due to high Consumer Price Index (CPI) underlying data, the Federal Reserve (Fed) may be forced to suspend its rate-hiking cycle after the release of the US Personal Consumption Expenditure (PCE) Price index showed decreased numbers.
Friday marked the end of both the month and the quarter, a time when portfolio rebalancing processes frequently result in price changes for financial assets that are unrelated to fundamental factors.
These changes mostly happened on the foreign exchange market, where the US Dollar strengthened against practically all other currencies despite falling treasury bond yields across all benchmarks. Market interest rates typically continue to be positively correlated with the value of currencies. The yield on the 10-year US bond decreased by 10 basis points to 3.47% while the EUR/USD pair dropped by 60 pips.
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European CPI figures released on Friday showed a slight decline in the headline CPI but remained high in the underlying data, suggesting that the ECB may keep raising interest rates as most of its officials have stated. This should have had a bullish effect on the Euro, but due to capital flows on the final day of the quarter, this was not the case.
In contrast, the PCE Price index for the United States – the inflation number that the Fed prefers – showed that both the headline and core PCE Price index experienced declines below expectations, giving the FED yet another reason to keep interest rates stable in order to avoid adding more stress to the banking system.
The stock market responded favourable to both releases as it showed gains in the major indices above 1%. A bull market is already thought to be in place for the technology Nasdaq 100 because it finished the quarter with gains of more than 20% from its lows at the end of the previous year.
WTI Crude rose slightly over a Dollar to $75.70 on Friday as crude prices continued to surge.
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The announcement over the weekend that Saudi Arabia and the Gulf countries have decided to cut production by 1M barrels per day ahead of today's (Organisation of the Petroleum Exporting Countries and allies) OPEC+ meeting will likely push the price higher. The next reference levels are at 76.90 and 81.70.
Sources: Bloomberg, Reuters
