European Markets Brace for US Inflation Data Impact

European stock markets are poised for a cautious start on Wednesday, as investors nervously anticipate the release of the monthly US inflation report. This key economic indicator could influence the Federal Reserve's upcoming monetary policy decisions. European equities saw minor gains on Tuesday following the Easter holiday break, yet market sentiment continues to be apprehensive. Investors are closely monitoring the US Consumer Price Index (CPI) for March, seeking to understand the persistence of price increases and their potential impact on the Federal Reserve's actions. Many believe the Federal Reserve is nearing the conclusion of its aggressive rate-hiking cycle, although another rate increase could be on the horizon in May when policymakers reconvene.

Philadelphia Fed President Hints at Near End of Rate-Hiking Cycle

On Tuesday, Philadelphia Federal Reserve Bank President Patrick Harker suggested that the Fed may soon halt interest rate hikes while reiterating the central bank's dedication to curbing inflation from its current elevated levels. With a lack of significant economic data releases in Europe on Wednesday, stock markets are expected to remain in a holding pattern until the US inflation report is published. The report is predicted to reveal that core inflation, which excludes volatile food and energy prices, rose by 0.4% month-over-month and 5.6% year-over-year in March.

In corporate news, French luxury goods conglomerate LVMH Moët Hennessy Louis Vuitton is set to release a sales update later on Wednesday. This update may offer insights into the Chinese market's response to the easing of COVID-19 restrictions towards the end of last year.

Safe Haven Buying Boosts Gold Prices After Fed President's Recession Warning

Gold prices experienced a significant boost on Wednesday, as concerns over a possible recession this year spurred safe-haven buying. The surge in gold prices came after Minneapolis Federal Reserve President Neel Kashkari expressed concerns about the potential economic downturn, with investors also awaiting further US economic indicators to be released later in the day.

Fed President Kashkari's Comments Precede Key Inflation Data Release

Kashkari warned that rising interest rates and a lending slowdown, following the collapse of several US banks, could result in a recession this year. However, he also argued that maintaining high inflation could prove even more detrimental. These remarks come ahead of the release of consumer price index inflation data, which is expected to show a decline in March. Despite this, core inflation, which excludes food and energy prices, is anticipated to remain persistently high, potentially exacerbating overall price pressures.

Potential Pause in Fed's Rate Hike Cycle Benefits Gold and Other Non-Yielding Assets

The Federal Reserve has pledged to continue raising interest rates in an effort to combat high inflation. The minutes from the central bank's most recent meeting, set to be released on Wednesday, are expected to provide further insight into this commitment. A potential pause in the Fed's rate hike cycle could benefit gold and other non-yielding assets by reducing the opportunity cost of holding such assets. Concurrently, the US dollar weakened against a basket of currencies on Wednesday, and Treasury yields saw a decline in overnight trading.

Following Kashkari's warning, the demand for gold as a safe haven asset increased. Both spot gold and gold futures rose by 0.5% to $2,013.33 and $2,028.25 an ounce, respectively. This leaves both gold instruments approximately $60 below the 2020 record high. The collapse of multiple US banks in early March heightened expectations that the Fed may have limited capacity to continue raising interest rates, contributing to gold's upward trajectory.

Oil Prices Stabilize in Anticipation of Inflation and Stockpile Data

Ahead of the US inflation data and government crude inventories release, oil prices stabilized on Wednesday. Despite the American Petroleum Institute reporting a 380,000-barrel increase in crude stockpiles last week, a weaker US dollar facilitated a 2% gain in crude benchmarks on Tuesday.