Increasing interest rates continue to exert pressure on stock and gold markets

Stock markets showed a weak start to the new month, driven mainly by declining economic activity in China and rising interest rates by major central banks. The dollar index, which measures the currency's value against the other six major currencies, traded in a flag pattern near its 20-year high of 103. Euro sellers are still struggling with 1.05 support.

Stock Markets Outlook

Data from China PMIs show that the effect of the coronary restrictions was greater than expected. The manufacturing PMI, which had returned below the healthy 50 level, fell from the previous 49.5 readings to 47.4, and the non-manufacturing PMI fell sharply. The index fell from 48.4 to 41.9, the lowest level since the start of the epidemic in February 2020.

At the same time, the state of economic activity in Europe does not look very good. Indicators show that manufacturing activity is declining to a 15-month low, while the Ukraine war has darkened the economic outlook amid uncertainty.

US markets are playing the same concert. Stocks are under pressure from rising Federal Reserve bond yields and contractionary policies. For this reason, investors are focusing on the Federal Reserve meeting, which is set to raise interest rates by 50 basis points each time in two consecutive meetings in May and June. The move is expected to put pressure not only on stocks but on all dollar-denominated assets.

Gold and rate hikes

Aside from the war, the risk of a possible recession and uncertainty about the continuation of the recovery is now monetary policies that play a significant role in the gold market. Large banks' rising interest rates, especially the Federal Reserve, have prompted investors to reconsider holding their long positions and turn to currencies strengthened by the policy, given the increasing opportunity cost. By doing so, they will be able to cover part of their risk.

As a result, gold is experiencing a massive sell-off, reaching its lowest level since February, around $ 1860. Given that the interest rate gap is still huge from central banks' targets, the continuation of successive increases in interest rates could push gold into a dipper downtrend and put the 1830 and 1800 back in perspective.

Event of today

The European economic calendar on Tuesday is accompanied by two critical reports. Germany's unemployment changes for April are one of those expected to fall by 15,000. Improving employment during an inflationary period could allow the European Central Bank to use more tools to counter rising prices.

In addition, the UK Production Managers Index is published in the UK. The index gradually fell below 57.9 during the first quarter and is expected to reach 55.3 points in April.

During the US trading session, investors will focus on new job data for March. This report measures the number of open positions in the active companies for jobs that can start within 30 days. It is expected that the number of new jobs will reach 11 million in March despite over 11,200 million being added in the first two months of this year.