Fed must manage rate cut timing judiciously in election year; Oil may top $90/bbl: Peter McGuire

US Fed signals three rate cuts for 2024

The US Federal Reserve has maintained its guidance of three rate cuts for the year, which has effectively diminished uncertainty surrounding the rate cut trajectory. The ‘dovish’ tone adopted by the central bank has sparked a rally across equities as well as other asset classes like gold. All three major US indices notched fresh closing records while the yellow metal topped the $2,200 mark for the first time.

In an interaction with Moneycontrol, Peter McGuire, CEO of XM Australia, says that the US markets may have more steam left and gold may sparkle some more before some profit booking kicks in. He says the Fed’s reiteration of three rate cuts removes the uncertainty over its easing path and feels that the first one could come in June.

Fed has stuck to the guidance of three rate cuts for the year, which removes uncertainty over the rate cut trajectory. Do you expect the US market rally to continue?

Certainly, the consensus on the three rate cuts is quite convincing. In fact, a substantial 67 percent of analysts are now predicting the first rate cut in June. However, timing will need to be judiciously managed, especially with an impending election in early November. On the other hand, the surge in gold prices, the weakening of the US dollar, a notable decrease in the two-year yield by about seven basis points, and the S&P 500 hitting a new record – all reflect a surge in confidence. This confidence appears to be rippling across Asian markets as well, signalling a positive sentiment in the broader market landscape.

Also read: Fed policy aimed at boosting growth; bullish on India cyclicals: Pinetree’s Ritesh Jain

Do you expect oil to hit the $90/barrel mark any time soon? Is this upmove transitory?
I expect the upward trend to continue, possibly surpassing the $90 a barrel mark. However, it is difficult to predict the exact timing. Observing its movement earlier this week and throughout last week, there was speculation it might reach this threshold by Good Friday, which is just over a week away. The overall momentum driving the price upward has been robust, with considerable buying activity. Additionally, we are closely monitoring the global landscape and OPEC's positioning. I won't be surprised if we see prices going past the $90 mark sometime in April. We'll need to keep an eye on factors like the summer driving season in the Northern Hemisphere and its impact on consumption.

Gold is shining at fresh highs and Bitcoin has recently clocked a new all-time high, although it has cooled off a bit. What are your thoughts on these two asset classes?
Gold has shown remarkable strength recently, and there might still be some upward momentum left, although we could see some profit taking. The gold market, as well as silver, has been quite dynamic in the past few weeks. On the other hand, Bitcoin remains volatile, fluctuating between $73,000 and $62,000 before settling around $67,000 currently. Despite its choppy behaviour, I am quite optimistic about its prospects. During our conversation in Mumbai about four weeks ago, I mentioned about keeping an eye on Bitcoin, and I wouldn't be surprised if it surpasses its current value by the end of the month.

Also Read: Chart of the Day: Gold set to glitter more in 2024

The Bank of Japan has hiked interest rates for the first time in 17 years. Will the yen carry trade lose its appeal?
I think it would still be a very attractive trade. With interest rates returning to zero, such actions are likely to receive applause. Additionally, robust wage negotiations in the early part of the year are encouraging for consumption and beneficial for workers. However, attention should be paid to the trajectory of the US dollar, particularly its potential for upward movement. While the yen has slightly weakened, it still stands at over 150 to the dollar. I won’t be surprised to see some intervention from the Bank of Japan, but they have had a very busy week, so you wouldn’t expect two big surprises from them in a week.

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