Easing concerns about a banking contagion led to extended gains in risky assets this week, though the uncertain macroeconomic situation capped the upside.
Risk appetite improved after US treasury secretary Janet Yellen vowed more action to keep bank deposits safe. It calmed the market, pushing the dollar to a two-month low of 101.915.
US President Joe Biden, too, urged regulators to take up reform measures, including reinstating safeguards for banks with assets between $100 billion and $250 billion.
The Fed said it would make additional funding available to depository institutions to "help assure banks can meet the needs of all their depositors."
These reassurances eased worries about more banking casualties in the wake of the failure of Silicon Valley Bank (SVB) and Signature Bank.
The dollar held near 102 levels as an increase of 7,000 in US weekly jobless claims to 1,98,000 hinted at a cooling labour market and added to bets that the Federal Reserve could slow down its tightening.
Euro and pound sterling jumped to $1.09 and $1.24, the highest since the first week of February. Gains in Euro were sustained despite mixed inflation reports as markets do not see it as a clear signal for the European Central Bank to pause rate hikes.
Glittering March for gold
Comex gold declined earlier in the week on improved risk appetite and rising bond yields but still managed to surge above $2,000 a troy ounce. It is headed for more than an 8 percent gain in March amid weakness in the dollar on rising bets of a shift in the Fed policy stance.
On the investment demand front, SPDR gold holdings were at 925.42 tonnes, the highest since October 2022.
Base metals swung between gains and losses, as investor confidence remained weak in face of macroeconomic uncertainty, exerting pressure on prices while a softer dollar provided a cushion.
Crude worries
WTI crude saw the biggest upside in the non-agricultural commodities pack on supply disruption concerns after Kurdistan’s exports, nearly 400,000 bpd shipped through an Iraqi-Turkey pipeline to Ceyhan, were halted by the Iraqi government.
Crude prices are in for a 7 percent upside this week and may surge further if the deadlock continues and Gulf Keystone Petroleum Ltd. became the latest oil producer in Iraqi Kurdistan to cut production.
The Market is hoping for a breakthrough as another round of talks is expected between Kurd and Iraqi officials.
Investors will watch the US Core PCE, which is expected to show a slight easing of price pressures in February, though it may be above the target. Any surprise increase in the Fed’s preferred inflation gauge may favour more rate hikes, especially after some FOMC members suggested monetary tightening was necessary.
The US labour report will also keep the market on toes. Final services and manufacturing PMI figures from major global economies will be keenly tracked.
Oil markets will be plugged into the OPEC+ meeting, though changes to production quotas aren’t expected.
Overall, markets will largely move in line with the US economic data if the banking crisis remains contained.
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