The FOMC May meeting’s largely predicted but highly awaited outcome failed to comfort investors as banking sector troubles returned. Post-policy, Chair Jerome Powell assured investors that the US financial sector is strong.
At the May FOMC meeting, the Fed hiked the Fed funds rate by 25 bps to 5–5.25 percent, the highest level since September 2007. The May FOMC statement’s omission of “the Committee anticipates that some additional policy firming may be appropriate” to achieve the Fed’s 2 percent inflation objective raised anticipation of a rate rise halt, but Fed Chair Jerome Powell dismissed the possibility of a rate decrease.
WTI Crude oil is reaching the 200-period simple moving average support of around $66/bbl.
COMEX Gold rose over 1 percent, its highest weekly increase since mid-March, driven by safe-haven demand and a weaker dollar. Gold rose to Rs 61,845/10 gms on the MCX and $2085.4/oz on the COMEX, close to the all-time high of $2089.2/oz reached during COVID-19. Silver rose to a one-year high of $26.43/oz, disregarding industrial metals’ slump.
The June FOMC meeting may halt the Fed funds rate, which is a bullion trigger. COMEX Gold must break the similar triple top resistance at $2090/troy ounce. If so, bulls may aim $2150/troy ounce. If bulls fail to break resistance, corrective declines may draw buyers.
WTI Crude oil dropped 7% for the third week in a row, while base metals fell as worries of a US recession and a slowing Chinese growth weighed on riskier assets. Asian refinery margins and US gasoline demand fell, worsening oil losses.
WTI Crude oil is reaching the 200-period simple moving average support around $66/bbl. The price might drop to $62/bbl if the support breaks on a daily closure. Bulls might rally to $72/bbl if support holds.
Regional lenders have many deposits over the $250,000 Bank Account Insurance cap, making investor trust unstable. If Congress does not increase or suspend the borrowing ceiling in the next weeks, enormous debt default risks remain.
Worries that financial instability may tighten credit conditions and increase recession bets. However, CME Fed funds futures now indicate a 47% chance of a 25 bps drop in July.
Markets also await the monthly Labor Department data, which is likely to indicate a drop in hiring and a minor rise in the unemployment rate last month, as well as UK monetary policy and US CPI next week.