The Broader Economy
The probability of a US recession has escalated in response to recent events; however, the risk outlook for the markets is transitioning towards a more balanced state. This year's March turbulence diverged from the norm as investors grappled with market volatility and renewed uncertainties stemming from a regional bank crisis.
What the Fed said: During the March FOMC meeting, the Federal Reserve exhibited cautious determination, implementing an additional 25 basis point rate hike accompanied by dovish forward guidance, which investors (perhaps mistakenly) took as a signal of an impending cessation to the hiking cycle.
More rate hikes for the remainder of 2023? Over a year into the tightening process, the Fed has elevated rates by 4.75%, extending well into restrictive territory. Some experts say to anticipate the Fed raising the terminal rate to 5.1% by the end of 2023.
But is the Fed’s policy working? Yes, sort of. Consequently, financial conditions have tightened significantly, with the housing, manufacturing, and market sectors all undergoing corrections within the past year. Friday's PCE report also came in lower than expected.
So, what’s with the dovish/hawkish debate? The intensification of lending standards due to banking system pressures is poised to perform the remainder of the Fed's role, exerting a drag on economic growth and inflation while mitigating the risk of further rate hikes.
Still, economists are expecting a “mild” recession in 2023: Despite the increased likelihood of a US recession in light of these factors, the risk outlook for the markets is approaching equilibrium. Monetary policy should present less of an obstacle for stocks moving forward. Economic data is trending in a favorable direction, and the deceleration in inflation, wages, and activity is anticipated to become increasingly pronounced in the upcoming months.
The Gold Market
Gold has been rallying for three straight weeks: The smaller declines in prices is primarily attributed to the easing of anxieties related to the stability of financial institutions. Despite this, gold’s uptrend appears strong, rallying in response to easing inflationary conditions and a weaker dollar.
Despite gold prices remaining flat in the international market (except for India), prices in the US are hovering at $1,996 per ounce. And it appears to be poised for a breakout move toward the upside.
Prices jumped on Thursday after the US reported higher-than-expected jobless claims last week, suggesting a slowing job market. This economic struggle bolsters gold's safe-haven appeal.Additionally, US quarterly GDP data indicated further economic decline. The GDP growth from October to December last year was 2.6%, just below analysts' expectations of 2.7%.
The Silver Market
The state of the silver market is looks exceedingly favorable considering the number of open futures contracts in relation to the allocated silver supply.
Here are the numbers: Open interest in COMEX futures stands at 118,382 contracts, and each contract represents 5,000 ounces. Meanwhile, the total of renistered and eligible silver metal in vaults amounts to -856,144 ounces. What this highlights is the mismatch between supply and open interest, potentially adding to the bullish case for silver prices in the future should supply converge with demand.
The Week Ahead
We’re watching a slew of labor market reports leading to the big Employment Situation report (aka, the Jobs Report) on Friday. Also, ISM manufacturing, construction spending, factor order, and consumer credit reports are slated for release.