Markets Trade Sideways As U.S. Data Strengthens

• S&P500 faces headwind towards weekend, but secures 5.5% quarterly gain
• Nasdaq secures 9.8% gain for Q1, largest since 2013
• Weak E.U. inflation leads to expectations of more ECB accommodation
• Higher U.S. inflation sees EUR/USD recede to 1.0652
• Oil gains 6% weekly amid speculation on further OPEC output cuts

After seeing a marked recovery at the start of the week, markets traded mostly sideways in recent days. Friday headwind was provided by a strong PCE, the Fed’s favorable measure of inflation, with a headline figure ascending to 2.1%, exceeding the Fed’s target. Core PCE inflation lagged a tad behind, though still exceeded analyst expectation, at 1.8%. While data pointed to further tightening, dovish language was provided on Friday by NY Fed president Dudley, who, when asked on the possibility of a May rate hike, noted that he doesn’t “think that we’re at a stage in the cycle we’re there is a great urgency to tighten monetary policy.”

In spite of a 0.2% decline on Friday, the S&P500’s gains summed to 0.8% for the week. The day also marked a 5.5% quarterly increase. This was the sixth consecutive quarterly gain and the largest since Q4 15’ at that. The Nasdaq was a touch stronger, nearly flat for the day, securing a hefty 9.8% quarterly increase – the largest quarterly increase for the high-tech index since Q4 2013.

In the Eurozone, alternatively, Advance March Consumer Price Index data pointed to a much weaker 1.5% annual inflation print, far below analyst expectations of 1.8%. Expectations for continued accommodation from the ECB have weighted on yields, with the German 10 year Bund’s yield sliding to 0.32%.

Divergent inflation indications between the U.S. and Eurozone have also reflected on the two economies’ currencies. These also followed earlier media reports of sources in the ECB who thought that the market’s perception of the ECB’s monetary intentions is more hawkish than it should be. EUR/USD receded to 1.0652 during the week, a stark 1.35% decline. Most FX market attention was grabbed by the news on the firing of South Africa’s Finance Minister, with USD/ZAR surging 7.9% Mon-Fri, to 13.41.

Oil recovers on continued OPEC cut speculation

Oil prices have performed quite strongly this week, totaling a 6% increase to USD 50.85 a barrel. Gains were fueled by speculation that OPEC would continue with its production cuts even beyond the current deadline, set for June. In spite of price gains, supply side pressures continue to mount, with Baker Hughes reporting an increase at the rig count from 809 to 824, the 11th consecutive increase for the print.

Risk-on sentiment at the start of the week, meanwhile, has weighed on gold prices, as those reached a low of USD 1,239.8 on Friday. The moderation of bond yields, however, has made gold a tad more appealing, at USD 1,238.2.