Cut cut cut ! It is everywhere on the market. First, the multi-billion dollar franchise McDonald's announced that it will cut its workforce in a corporate restructuring. Then OPEC announced that it would cut its oil production by 1 million barrels per day. The move saw a jump in oil prices and energy stocks, which were weakening due to slowing demand and russian oil overflowing into the market even though sanctions were applied by the west. UBS also announced its intention to cut some 36,000 jobs after the recent forced merger with Credit Suisse. Now the market is attentive to the Fed's next action in May as external pressure is boosting inflation, especially energy prices. Will they cut rates and risk hyperinflation or keep rates high and let the dominos fall one by one?
EQUITY
The S&P 500 ended higher on Monday, lifted by energy stocks following surprise cuts by OPEC+. Tesla tumbled after disappointing deliveries, but UnitedHealth jumped on the Medicare Advantage rate. Concerns over the global economic slowdown arise from lower PMIs in the US, UK, and Eurozone.
GOLD
Gold prices edged lower on Tuesday after a strong Monday rally as investors assessed the impact of weak U.S. manufacturing data and OPEC+'s production cut on inflationary risks and the Fed's monetary policy. Price action indicates a consolidative movement that could explode either way.
OIL
Oil prices rose after OPEC+ announced plans to cut production by 1.16 million barrels per day on top of the 2 million barrels per day announced back in October 2022. However, investors' attention has shifted to the future demand outlook and the impact of higher oil prices on inflationary pressures and interest rate hikes, which could dampen demand and reignite the banking crisis.
CURRENCY
The US dollar index fell by 0.53% to 102.048, with growing bets on a Fed pivot due to inflationary pressure from the energy sector. However, Goldman Sachs believes that further evidence of economic stress and tightening lending conditions following the banking crisis is needed to justify pricing in further dollar weakness, as the impact from the banking crisis remains modest.
