Markets Q3 Outlook: Gold, Oil, S&P 500, US Dollar, Euro, Pound, Yen, AUD, BTC

Risk appetite in the academic context experienced a further improvement during the second quarter. This was due to the unexpected resilience of the U.S. economy, which continued to perform well even in the face of ongoing central bank tightening. The stability of household consumption levels, largely attributed to the strength of the U.S. labor market, played a significant role in averting a recession. Additionally, the emergence of “artificial intelligence” sparked a renewed enthusiasm among investors on Wall Street, resulting in a remarkable surge in stock prices, particularly within the technology sector.

In the academic context, the Nasdaq 100 experienced a significant increase of approximately 15% in value, building on its gains from the previous quarter and achieving its best first half performance ever recorded. Similarly, the S&P 500 also performed exceptionally well across various indicators, although it only saw an increase of about 8.5%. This performance was somewhat hindered by negative performances in the utilities, energy, and consumer staples sectors. Bitcoin, on the other hand, recovered after a decline in May and ended the quarter above $30,000 per token, reaching one of its highest levels in over a year.

In the field of foreign exchange, the DXY index indicates a slight increase in the value of the U.S. dollar, primarily due to the weakening of the yen. Over a three-month period, there was a significant rise of 8.63% in USD/JPY, briefly surpassing 145.00, as a result of the Bank of Japan’s continued accommodative stance. Simultaneously, the British pound experienced an approximate 3% appreciation against the U.S. dollar due to repeated instances of higher-than-expected inflation in the UK, leading to an extension of the Bank of England’s interest rate hikes.

Gold (XAU/USD) initially experienced a strengthening in the commodities market but ultimately failed to establish new records. Subsequently, it began to decline and fell by approximately 2.5% during the second quarter. This decrease in value can be attributed to the impact of rising yields, which occurred as a result of the Federal Reserve’s hawkish repricing of their monetary policy outlook due to persistent high inflation and strong economic activity.

In anticipation of the third quarter, the investment outlook may shift and become more challenging for certain assets. Equities may face pressure if the Federal Reserve follows through on its commitment to implement 50 basis points of further tightening by the end of the year. For an economy in the advanced phase of the business cycle, enduring interest rates close to 6.0% without experiencing negative effects would be exceedingly difficult.

Gold may experience a period of decline in the near future, but is expected to stabilize by the end of summer. This is due to the likelihood of several major central banks increasing borrowing costs in order to control inflation. As a result, both nominal and real interest rates could remain higher, negatively affecting assets like gold and silver that do not provide yields.