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Dow Jones and S&P 500 are down 0.3-0.5%. Nasdaq is on the weak side

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The U.S. stock indexes Dow Jones Industrial Average and S&P 500 ended Thursday trading lower but well above intraday lows, while the Nasdaq Composite came out with a small plus.

Traders were assessing the prospects of the Federal Reserve (Fed) raising the benchmark interest rate at its July meeting, as well as U.S. bank reports for the past quarter.

U.S. Labor Department data published on Wednesday, which showed an increase in inflation in the country to a maximum of nearly 41 years, 9.1%, led investors to revise their forecasts about the pace of the Fed’s rate hike. At first, the rate futures quotes showed that traders were 85% confident in the likelihood of the U.S. Central Bank rate hike by 100 basis points (bps) in July.

However, Fed Board of Governors member Christopher Waller said that the market may be “getting a little ahead of itself” by expecting a 100bp rate hike. He noted that he still favors a 75-bp rate hike in July, but acknowledged that economic data to be released shortly could change his mind in favor of a sharper hike. 

“If this data turns out to be substantially stronger than expected, I might lean toward a larger rate hike in July because it would mean that demand in the economy is not weakening fast enough to contain inflation,” he said.

Following Waller’s statements, the futures market’s estimate of the chances of a rate hike of 100 bps in July dropped to 42%; Market Watch notes. On Friday, the University of Michigan will release the preliminary value of its consumer confidence index for July. The index fell to a record low of 50 points in June. 

The University of Michigan data also includes trends in Americans’ inflation expectations, which last month stood at 5.3 percent for the medium term (next year) and 3.1 percent for the long term (five years). “We’re waiting on this data to see if inflation expectations in the U.S. have strengthened,” notes LPL Financial analyst Quincy Crosby. – If they rise, the Fed will probably discuss a 100-bp rate hike. Or the central bank will have to hike the rate at a 75-bp pace longer than it anticipated.”

Data released Thursday showed an acceleration in U.S. producer price growth in June to 11.3 percent annualized from 10.9 percent a month earlier. The rate of increase in producer prices reached a record 11.6% in March of this year. Negative for the market Thursday were weak financial reports from banks JPMorgan Chase & Co. and Morgan Stanley for the past quarter.

“High inflation, weakening consumer confidence, uncertainty about how high rates will be raised and unprecedented quantitative tightening and its impact on global liquidity are very likely to have a negative impact on the global economy,” said JPMorgan Chief Executive James Dimon. – We’re prepared for whatever happens.”

  • The Dow Jones Industrial Average index fell 142.62 points (0.46%) to 30630.17 points in trading Thursday.
  • Standard & Poor’s 500 fell 11.4 points (0.3%) to 3,790.38 points.
  • The Nasdaq Composite rose 3.6 points (0.03%) to 11251.19 points.

The decline in net income at JPMorgan, the largest U.S. bank, by assets, exceeded analysts’ forecasts. In addition, the financial institution said it was suspending its share buybacks. Morgan Stanley also reported weaker-than-expected quarterly adjusted earnings and revenue. JPMorgan’s shares fell 3.5% in trading on Thursday, while Morgan Stanley’s fell 0.4%.

Conagra Brands, a prepared foods maker, fell 7.3 percent. The company nearly halved its net income in the fourth quarter of fiscal 2022, and its revenue was worse than market forecasts.

Shares of Cisco Systems Inc. fell 0.9 percent after experts at JPMorgan cut recommendations for the securities of the U.S. network equipment maker to “neutral” from “above market. The bank also lowered its outlook on Cisco shares to $51 from $62.

The value of Tesla Inc. securities rose by 0.5%. The day before, it became known that Andrei Karpaty, director of artificial intelligence and head of the development group for autopilot in cars, Tesla, left the company.

Citigroup Inc. and Wells Fargo & Co. will publish their results for the past quarter on Friday. The consensus forecast by analysts surveyed by FactSet suggests that S&P 500 index companies’ overall earnings rose an average of 4.3% in the past quarter, the slowest pace since late 2020. 


Brent crude oil futures its lowest since 2021 amid banking crisis

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Brent crude oil futures

The cost of May futures on Brent crude oil fell to $72.74 per barrel, losing 0.31%, according to data from the ICE exchange. Brent was trading at about $70 a barrel at its low for the day. That’s a record low for at least 15 months, that is, since December 2021.

WTI prices are also falling, with futures prices down to $66.43 a barrel (-0.46% from last week’s close), according to the exchange. WTI was trading at $64.12 a barrel at its low for the day. This is also the lowest value since at least December 2021.

The market is thus responding to the banking crisis: since the beginning of March, three banks (Silvergate Bank, Silicon Valley Bank, Signature Bank) have closed their doors in the US, and the day before, on March 19, Swiss UBS took over its rival, Credit Suisse, buying the bank for $3.2bn amid fears of its collapse. Investors fear a recession, which may cause a crisis in the banking sector, as a recession, in turn, would lead to lower demand for fuel, the agency said.

“Oil prices are moving mainly because of fears [of further oil price dynamics]. Supply and demand fundamentals are almost unchanged, only the banking problems have an impact,” said Price Futures Group analyst Phil Flynn.

Oil prices lifted from daily lows helped the S&P 500 and Dow Jones indices, which rose Monday, writes Reuters. Traders raised their expectations that the U.S. Federal Reserve would refuse to raise rates this Wednesday to protect financial stability amid banking problems, the agency noted.

“Volatility is likely to persist this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note. They add that the impending Fed decision adds to uncertainty in markets.

Earlier we reported that the price of Brent dropped below $75 per barrel for the first time in more than a year.

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Gold prices will reach $2,075 “in the coming weeks”

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Gold prices will reach

Gold prices may continue to rise, analysts polled by the CNBC TV channel said. In their opinion, the difficulties of banks and a possible turning point in the policy of the Federal Reserve indicate the possibility of a new rise in gold prices.

“I think it’s likely that we’ll see a strong move in gold in the coming months. The stars seem to be aligned for gold, and it could soon break new highs,” said Craig Erlam, senior market analyst at brokerage Oanda.

The expert explained that interest rates are now at or close to their peak, and the market, amid recent developments in the banking sector, is laying on an earlier than previously expected start of rate cuts. They also added that this situation would boost demand for gold even if the U.S. dollar weakens.

This month, Fitch Solutions rating agency predicted that gold prices would reach $2,075 an ounce “in the coming weeks” amid global financial instability, writes RBC. The company also added that gold prices will remain at a higher than pre-pandemic levels in the coming years. Craig Erlam confirmed this forecast.

Other Wall Street experts are also predicting a long-term rise in gold prices. For instance, Tina Teng, analyst for British financial company CMC Markets, thinks that the U.S. Federal Reserve’s sooner departure from its policy of raising interest rates might provoke another rally in gold prices due to the weakening U.S. dollar and falling bond yields.

Earlier we reported that oil prices accelerated their decline, continuing a trend from the beginning of the week.

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Analysts at U.S. bank Goldman Sachs revised its forecast on oil prices

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oil price forecast

Analysts at U.S. bank Goldman Sachs, one of the most optimistic forecasts about the cost of oil, changed its earlier forecast about the growth of oil prices to $100 in the next 12 months, Bloomberg said.

Now analysts predict that Brent crude oil will reach $94 per barrel in the next 12 months and $97 per barrel in the second half of 2024, the publication said.

The bank said oil prices have fallen despite rising demand in China, given pressure on the banking sector, recession fears and investor withdrawal.

“Historically, after such traumatic events, price adjustments and recoveries are only gradual,” the bank notes.

This week, the situation surrounding Swiss bank Credit Suisse triggered panic in the markets as oil plummeted to a 15-month low and Brent crude fell 12% to below $73 a barrel.

After the price decline, the bank expects OPEC producers to increase production only in the third quarter of 2024, contrary to Goldman’s forecast that it will happen in the second half of 2023. Analysts at the bank believe a barrel of Brent blend will reach $94 in the next 12 months and trade at $97 in the second half of 2024.

Bloomberg reported that the largest oil exporter, Saudi Arabia, announced higher April oil prices for markets in Asia and Europe.

Earlier, we reported that Iraq and OPEC advocated for guarantees of no fluctuations in oil prices.

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