What's in store for the markets in the second quarter of 2024? Explore the forecasts of OANDA analysts in the newest ebook

Inflation and interest rates remain the main factors influencing markets. Central banks are moving closer to decisions on rate cuts, but when will they actually happen? What can be expected from the gold, oil and cocoa markets in the coming months? Which currencies are worth watching? Find out from the ebook prepared by OANDA analysts, Łukasz Zembik and Wojciech Białek. 

Fed in no hurry to cut interest rates

The U.S. Federal Reserve is getting closer to cutting interest rates, although it is not yet 100 percent clear when this will happen. Before a decision can be made, the Fed will likely need more data indicating that inflation is fully under control and will fall to its longer-term target. Nevertheless, many market analysts predict the first rate is likely to be made at the June meeting, and are expecting three rate cuts before the year end.

Inflation remains one of the biggest points of focus for the Federal Reserve and the U.S. economy as a whole, while services continue to be the main source of price growth, gaining by 0.5 percent, reflecting strong wage growth. Faster-than-expected growth in U.S. producer prices is another sign that returning inflation to the government target of 2% is likely to remain a journey down a difficult and bumpy road. Otherwise, the U.S. Department of Labor's Bureau of Labor Statistics reported in March that the PPI index rose by 0.6 percent. This was higher than the 0.3 percent forecast and followed a 0.3 percent increase in January. As with the CPI, the acceleration was due to energy prices, which registered an increase of 4.4 percent. Gasoline prices rose 6.8 percent at the wholesale level. The PPI is considered a leading indicator of inflation because it indicates early-stage costs.

ECB - European market looks ahead to June

In its March statement, the ECB reiterated that if current interest rate levels were maintained "for a sufficiently long period of time", this would lead inflation back to the 2 percent target in the long run. In addition, ECB President Christine Lagarde suggested for the first time that a first interest rate cut in June is possible. However, she remained cautious about the pace of potential cuts and stressed that future decisions would depend on data.

Otherwise, eurozone economy data has not shown any growth since the fall of 2022, and real GDP is likely to have stagnated in the first quarter of 2024. The services PMI now offers some hope that the economy will return to growth in the spring, however, the recovery is likely to be very modest at first. Sentiment in the manufacturing sector remains weak.

Japan - historic moment to abandon negative interest rates

In a landmark shift in monetary policy, the Bank of Japan raised the cost of borrowing money for the first time since 2007. The short-term interest rate is now set between 0 and 0.1 percent, while the target for long-term government bonds has been abandoned. The BoJ is also stopping buying ETFs and REITs, and purchases of commercial paper and corporate bonds will be gradually reduced and completely halted over the next 12 months. Despite these rather broad measures, the yen reacted negatively to the decision and it still remains unclear what will happen next. There is no indication that the BoJ is planning a real interest rate hike cycle.

The USD/JPY exchange rate after the decision was again within historical highs (above 151.00), which raises the risk of possible currency intervention by the central bank or the Ministry of Finance.

Commodities market - gold, oil, cocoa

The gold price set a historic high near $2265 at the beginning of the second quarter, following the rally that took place after the Fed's recent decision to maintain rates and the institution's simultaneous confirmation that three cuts in the cost of money this year are the base scenario. As a result, gold gained more than 9 percent in value in March’s trading alone. On the last day of the month, the gold price reached a technical barrier, which is the upper limit of the upward channel calculated from the October 2022’s low. In line with this technical analysis, it would follow that in the following weeks there may be a downward correction, which could bring the price to the area of $2070-2065.

In the oil markets, the price of Brent crude oil managed to permanently overcome the horizontal technical resistance located at the level of $84 per barrel. In general oil prices are still moving in the medium-term uptrend, the beginning of which dates back to mid-December 2023. From a fundamental point of view, higher oil per barrel prices are a consequence of the postponement of OPEC+ voluntary supply cuts to the second quarter, and in addition, higher prices have been supported recently by Ukrainian attacks on Russian refining capacity. It should also not be forgotten that the continuing disruptions to oil shipments across the Red Sea are also leaving their mark on contract quotes.

Over the past 18 months, the price of ICE-listed cocoa contracts has risen by about 325 percent, the strongest 1.5-year increase in the price of these contracts in their history, dating back to 1959. At least some of this phenomena can be explained by climate change, and will  affect its main producers, such as Ghana and Ivory Coast.

Which currencies are worth paying attention to in Q2?

The chart of the euro against the Turkish lira (EUR/TRY) in March 2023 broke upwards from the level of its December 2021 peak, and then rose by roughly the size of the consolidation abandoned at the top. It can be speculated that the reason for such a strengthening of the Turkish lira are the recent decisions of Turkey's central bank, including the March hike in base interest rates from 45 percent to 50 percent.

The chart of the EUR/PLN share price broke downward in November 2023 from the "head and shoulders" formation forming above the level of around PLN 4.4 since March 2020. In the coming weeks, we should expect here the possibility of a "return movement" to the level of the broken support line (the "neckline" of the above-mentioned formation).

Read more about market trends for the second quarter of 2024 in the OANDA e-book: www.oanda.com/eu-en/market-trends-q2-2024.