Weekly Outlook: Market eyes Middle East tension

September 28, 2024 (MLN): This week, I will start with the geopolitical risk that could fuel the world market. We simply cannot close our eyes and ignore the realities since a lot will depend on how things turn out. 

Even so, there are still indications that the US economy is slowing down. The data point to a real slowdown in spending, given the reduced inflation and modest consumption. 

Fed officials will, nevertheless, exert every effort to control inflation and promote growth. It cannot bear too many layoffs. 

Furthermore, a great deal of uncertainty exists already as US elections draw near. 

Meanwhile, China also announced significant stimulus measures to boost its economy last week, which is another major development. It reduced the 7-day reverse repurchase rate by 20bpd to 1.5% and the reserve requirement ratio (RRR) by 50bps to 6.6%.

According to economists, these actions might contribute up to a half-percentage increase in GDP. European economy could get boost from China's economic recovery.

It is likely that fresh stimulus will be released somewhere around China's National Day, according to market speculation. 

While, Fed officials are choosing to take a dovish position during this time. Additional economic guidance will be provided by this week's release of US Non Farm Payroll numbers. 

On the assumption that the Fed may choose for a further 50 basis point drop in November, the USD is steadily declining to test the lows of the year. 

The market is already pricing a reduction in interest rates by more than 55%. 

Everything is exerting a greater impact on the USD. With the objective to test the new all-time highs, gold is also rising. 

All eyes, however, will be on the events in the Middle East front this week when the markets open. However, market will remain volatile.

#GOLD @ $ 2658–It's in a vulnerable position. There's an upside risk due to uneasiness in the Middle East region. But technically the pressure is on the downside. 

However, gold might rise on the upside only if it breaks $ 2686 towards $ 2700. 

While there is a risk of downside move. A break of $ 2640, will encourage $ 2618.

#EURO @ 1.1163- Euro has downside risk and is expected to hold 1.1235. A move below 1.1050 will encourage for 1.0990.

#GBP @ 1.3373- Pound Sterling is expected to hold below 1.3465. But it needs to break 1.3310 for 1.3250. Or else 1.3515.

#JPY @ 142.19- USD will have to hold and survive downside break of 140.50 levels. It will encourage for 143.98 or 145.90. Otherwise risk is for 139.50.

The writer is the former Country Treasurer of Chase Manhattan Bank

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.