China’s recent economic data showed unexpected improvements in various sectors, though concerns over unemployment and property crises linger. Germany has agreed on a significant spending bill aimed at enhancing growth, while US equities indicate potential corrections amidst economic challenges. The Federal Reserve’s decisions are awaited as gold continues to attract safe-haven investments.
Recent data from China reveals a surprising economic uptick, with fixed asset investment unexpectedly accelerating in February and industrial production slowing less than anticipated due to the Chinese New Year. Retail sales growth accelerated to 4%, exceeding forecasts. However, rising unemployment and concerns over the property crisis and shrinking population persist, despite the recent AI-driven boost in Chinese equities. In response, Chinese authorities pledged to stabilize markets and address decreasing birth rates. Consequently, the Hang Seng index rose 0.70%, while the CSI 300 index showed hesitation following an earlier gain.
In Germany, Friedrich Merz secured agreement with the Greens for a EUR 500 billion debt-financed spending bill to enhance infrastructure and defense. This development is driving German yields higher, particularly pushing the 10-year bund yield to 2023 peaks. The euro is gaining support from expectations of increased spending to bolster growth in Europe. However, such spending could also heighten inflation, necessitating a more restrictive stance from the European Central Bank (ECB), positively impacting the euro’s valuation. Current trends show the EUR/USD nearing the psychological mark of 1.10, with adverse UK economic indicators, including a drop in industrial production and negative GDP growth, affecting the GBP.
The rotation trade persists as the European Stoxx 600 remains buoyant near its 50-day moving average (DMA), while the FTSE 100 rebounded after a brief dip. Conversely, the S&P 500 encountered correction territory following a recent selloff. Increased consumer sentiment struggles and rising long-term inflation expectations could challenge the sustainability of the recent US equity rebound, projecting a 5-10% correction room still available.
The Federal Reserve is slated to maintain interest rates unchanged with high certainty. Market participants will closely examine the dot plot and Chairman Jerome Powell’s comments for insights into navigating the ongoing tariff war, significantly impacting the US economic outlook. Additionally, gold has reached unprecedented levels amid tariff discussions, prompting buying interest. Predictions suggest gold prices could soar to $3,500 per ounce due to geopolitical concerns, indicating its potential to rise toward a high of $3,800 when adjusting for inflation.
In conclusion, recent data from China indicates a mixed economic outlook with some positive indicators overshadowed by persistent concerns. Germany’s commitment to significant spending could drive growth but may also lead to higher inflation. The rotation trade is ongoing in Europe and US equities face potential corrections amidst deteriorating consumer sentiment. All eyes will be on the Federal Reserve’s forthcoming decisions, with gold also emerging as a key focus due to its rising prices driven by market uncertainties.
Original Source: www.fxstreet.com
