Monthly Market Outlook

In March, the main topic was the Fed. Rate cut expectations were trimmed to a more realistic state as inflation grew hotter. Other than the Fed, the Bank of Japan was in the spotlight as they ended the negative interest rate after 8 years. PMIs showed rising economic activity, while oil prices stepped up. 

Looking ahead to April, geopolitical concerns and the ECB decision along with inflation expectations will be in the spotlight, while markets await the Fed’s decision on the 1st of May. 

Macro View 

The US economy is growing robustly. The fourth-quarter GDP was revised up to 3.4% from 3.2%, while consumption was revised up to 3.3% from 3%. Strong consumption, especially from the services sector, is keeping growth strong. While the economy is growing at an above-average level, inflation continues to cool off, although at a slower pace. Both PCE and CPI monthly increases are above the level that the Fed wants, and monthly gains are higher in the first two months. 

The labor market remains tight. Job gains and open positions slowed compared to 2021 and 2022 but are still too high. The downtrend for net payroll changes seems to have halted, with three months in a row of over 200,000 job gains. Unemployment rose to 3.9% with a significant downward revision of January nonfarm payrolls data. 

Average earnings slowed in February, but the yearly increase is 4.3%, way above yearly PCE and CPI levels. This might cause inflation to be stickier in the coming months. 

The current inflation and growth outlook have not changed the Fed members’ trajectory for three rate cuts in 2024. However, it appears that members see the neutral rate a little higher, as the forecast for the federal funds rate has been revised up for all of the forecast horizon except for 2024. Even the longer-run expectation has increased by 0.1%. 

The growth forecast for 2024 has undergone a significant revision, increasing from 1.4% to 2.1%, and rising slightly for 2025 and 2026 as well. While the inflation forecast remains almost the same, core inflation for 2024 has been revised 0.2% higher to 2.6%. 

Looking at the overall picture, the Fed sees a slightly higher neutral rate with strong growth and low unemployment rates. This shift, if supported by data, will likely result in a slower rate cut trajectory. The most significant signal for a faster rate cut scenario would be a sudden surge in unemployment in the coming months. Unless this occurs, members will not rush for fast cuts. Our main view remains unchanged, with the first cut expected to start in June and a total of two or three cuts for 2024. 

With the start of February, inflation expectations have surged, especially for the short to medium term, due to hotter than expected inflation numbers. While market expectations are surging, oil prices have also moved up. If the current trend of oil prices persists for too long, upside risks for inflation will increase as well. 

PMIs continue to stay strong during March, with significant upward numbers from Japan and China. Overall, developed economies are performing satisfactorily, and economic activity is rising, led by the services sector. The weak link, Eurozone’s PMI, has also approached the 50 level, indicating that the activity slowdown is nearly over. However, the very low Manufacturing PMI from Germany still raises questions about the economic recovery. 

The number of rate cut expectations has been trimmed since the start of 2024. At the beginning of this year, markets expected at least 6 cuts from both the ECB and the Fed. The market expectation and central bank forecasts had diverged significantly, but this discrepancy has now been reduced to a more realistic level. During this period, expectations from the Fed and the ECB started to differ as well, primarily due to the strong US economy contrasted with the weak recovery in the Eurozone. 

At the end of March, markets expect the Fed to cut rates 2.7 times, while the ECB is expected to cut rates 3.5 times. This difference, in addition to the current level of interest rates, might cause EURUSD to experience downward pressure in the coming weeks if it persists. 

Bank of Japan ended the 8-year-long negative rate period in March. Despite the decision, Japanese monetary policy remained ultra-loose with the continuing bond-buying program. There is no indication that the BOJ will initiate more rate hikes. The messages from the members mostly favor staying with loose policy. 

Central Bank Meeting Calendar 

Technical View 

The US 10-year government bond yield had a steady month, fluctuating between the Fibonacci 23.6% level at 4.07 and 4.35 on the upside. The FOMC’s upward revision of the Fed funds rate forecast, especially for the longer run, is bearish for bonds. However, the current technical outlook indicates a possible reverse flag for yields, and 4.20 might be a high level if considering retreating inflation and incoming rate cuts, even if they will be fewer than expected. 

After remaining flat between 80 and 85 for weeks, Brent oil has finally started to increase once again. The ongoing geopolitical risks, US inventories, continuing OPEC cuts, recovery signals from the manufacturing sector, and Ukraine’s attacks on Russian oil production facilities are pressuring oil prices upward. The current uptrend might extend into April as well, but the key resistance at 89 and the uptrend channel will intersect in this case. Near the 89 and 90 levels, Brent might decide whether to make another jump towards 100 in the coming months. 

Precious metals enjoyed very good returns in March, with silver leading the way. Silver surged more than 11%, while gold and last year’s weakest link, palladium, joined silver with over 9% returns. The worst performer was platinum, which also gained 3.50% in March. 

ETFs continue to reduce their gold positions, but the pace of reduction finally slowed down as gold prices reached record highs. Meanwhile, money managers in the futures market increased their positions to the highest level since March 2022. 

Gold has been surging very aggressively since the end of September. The upward moves are now very close to reaching the upper line of the 21-month-long trend channel, which is at 2260. The latest rally occurred while the dollar index was rising. The breakout of the 2050-2075 resistance zone was a major change for bullion, but the recent surge might have extended the upward moves a little too much. In case of a pullback, 2145 and the 2050-2075 zone will be the supports to watch. There is also a chance for the short squeeze to continue for some time as well. 

The major contraction of silver prices continues. The triangle pattern from 2020 remains ongoing. In March, silver tested the 26 resistance then pulled back to 24.35 but was able to remain above it. If this continues, upward pressure may persist. But a break towards the downside might bring the silver price to 23.50 again. 

The main map of the dollar index has not changed since November 2022. The movement remains flat between 101 and 107. However, with the start of 2024, a humble uptrend has been formed. The hotter than expected inflation from the US and revisions from the FOMC have put the dollar index in the upper half of this trend channel. If the 104.25 support holds, the dollar index has the potential to move towards the upper line of the channel, above 105.50. For the long term, there is no fundamental or technical sign of the 101-107 horizontal area changing, for now. 

The stock markets enjoyed good returns for yet another month. During March, the MSCI World Index rose by 3.44%. The DAX rose by a whopping 6.59%. After the pullback from the December breakout, the total return of the DAX has surpassed 12% since the middle of January. The industrial-heavy Dow Jones and tech-heavy Nasdaq remained below the MSCI for most of the month. 

The VIX Index stayed stable at very low levels, with VIX futures also showing almost no indications of rising. This bodes well for S&P 500 bulls so far, as the upward move of the S&P remains stable in a high slope trend. 

The S&P 500 is rising within a very tight and high-sloped trend channel. The latest moves have become even tighter and are very close to the upper line of the channel. At some point, this aggressive upward trend should take a break with some profit-taking, but as long as the trend holds, there is no need to be underexposed right now. For any short-term correction, 5255 can be followed as the first stop, while for a bigger correction, the 34-day moving average is the main support so far. 

With the dollar index strengthening slightly, the Euro and Yen fell 0.43% against the dollar. The AUD and GBP remained more appreciated relative to the Euro and Yen, but the dollar also strengthened against them. With the Swiss National Bank’s surprise rate cut, the Franc was one of the worst performers and fell against the dollar by more than 2.6% during March. 

EURUSD has been moving flat since November, trading between 1.07 and 1.11, and this pattern persisted in March as well. After testing the 1.10 resistance, EURUSD retreated to the 6-month-long trendline but has been able to stay on top of it so far. The hot inflation data, along with strong GDP and a hawkish FOMC forecast, has once again shifted momentum in favor of the USD. If the trend holds, which is currently near 1.0775, EURUSD might attempt an upward reaction. The 50-day moving average is the first line of defense for EURUSD bears; a breakout could potentially become a bullish signal. However, if the trendline fails to hold the recent retreat, 1.07 will be the next target to follow. 

EURUSD has been in a long-term downtrend since 2008. Whenever the trend is tested with a small or larger margin, net long positions reach local top points. Non-commercial Euro net long positions in the futures market appear to have reached their peak, and the positions started to fall faster. So far, the downward effect of this fall on EURUSD remains limited, but this might be an indication of further weakness. 

USDJPY has reached a major resistance zone. The ascending triangle formation signals huge upside potential in case of a breakout of the 150-152 resistance zone. So far, the threat of FX intervention and end of negative rate cuts have been able to hold back the breakout, but downside moves remain very limited and are seen as buying opportunities by the market. If a breakout occurs, a sharp move towards the north might begin. However, traders should tread with caution due to the possibility of FX intervention. Between a possible breakout and potential FX intervention that follows, volatility might pick up even more in April.