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.
US Equity Benchmarks, Gold, Bitcoin and US Dollar Second-Quarter Performance Chart
- The hawkish monetary policy adopted by central banks has led to an increase in both nominal and real yields, posing a potential challenge for XAU/USD as gold prices may continue to experience downward pressure in the third quarter.
- The fundamental outlook for the US Dollar in the third quarter is heavily dependent on data. Despite a decrease, US inflation levels remain relatively high, partially due to the strength of the job market in the United States.
- The US equities market is expected to continue its strong performance in the third quarter due to several factors, including improved overall sentiment following the raising of the US debt ceiling, reduced stress in the banking system, the resilience of the US economy, and optimism regarding global interest rates reaching their peak.
- In the academic context, the focus of the Bank of England is to strike a balance between potential recessions and the likelihood of future interest rate hikes in relation to the Q3 fundamental outlook of the British Pound.
- The technical forecast for the Japanese Yen in the third quarter indicates a bullish trajectory for USD/JPY and EUR/JPY. This is supported by the prevailing sentiment of strong negativity towards the Japanese yen.
- In the academic context, the technical forecast for crude oil in Q3 reveals that Brent bulls are optimistic. The technical analysis shows that there has been a consolidation phase, and now there is potential for an upward breakout towards the long-term trendline and the $80 mark.
- The European technical forecast indicates a decrease in bullish drivers, leading to a weakening of the euro as we enter the third quarter.
- The fundamental forecast for Bitcoin in Q3 remains positive despite facing challenges from regulatory issues and increasing interest rates. The cryptocurrency has proven to be resilient and is expected to experience upward movement, as it has not been significantly affected by these obstacles.
- The third quarter technical forecast for the Australian Dollar indicates that it has been experiencing a range trading environment, similar to other asset classes in 2023. However, at the mid-year mark, the AUD/USD pair has not come close to testing its highest or lowest levels of 0.7660 and 0.6170, respectively, as observed in 2022.