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Forex Market Analysis: Currency Trends Amidst Economic Uncertainty

February 19, 2024

CURRENCIES:

Overview of Market Trends for the Week Ahead:

  • US stock indices and gold prices recovered their losses following concerns over US inflation.
  • Persistent inflation at the producer and consumer levels in the US didn’t deter the stock indices, which remained close to multi-year highs.

Inflation and Market Reactions:

  • This week’s US inflation data drove Treasury yields and the US dollar up as markets adjusted expectations for US interest rate cuts.
  • Above-expected US CPI and PPI figures boosted the US dollar, initially causing a decline in US indices. However, these effects were largely reversed by the week’s end, stabilizing most markets.

Market Volatility and Recovery:

  • The VIX chart showed mid-week volatility with a significant rise post-US CPI announcement, which was later mitigated in the following days.
  • Despite fluctuations, US indices closed the week near their recent highs.

International Market Performance:

  • The FTSE 100 stood out by performing strongly against its global counterparts, supported by positive UK economic data and a slight rise in the US dollar, benefiting from the fact that around 70% of its company earnings are generated overseas.

STOCK MARKET:

  • Goldman Sachs raises S&P 500 target to 5,200 due to profit expansion.
  • The firm increased its forecast following the stock market surpassing the 5,000 milestone.
  • This marks the second time Goldman Sachs has updated its S&P 500 target for 2024.
  • The new target suggests a 3.9% increase from the current level, adjusting the forecast up from 5,100 to 5,200.
  • Initially, Goldman Sachs predicted the S&P 500 would reach 4,700 by year-end.
  • Goldman’s 5,200 target now aligns with optimistic projections from Wall Street analysts like Tom Lee and John Stoltzfus.
  • The firm also revised its earnings-per-share forecast for the S&P 500, anticipating stronger growth in tech and communication sectors.
  • Despite the upward revision, Goldman Sachs expects valuation multiples to stay near present levels, emphasizing earnings growth as the key to further gains.
  • The S&P 500 has seen a 4.9% increase this year, driven by Federal Reserve policy shifts and AI-driven tech stock rallies.
  • Wall Street peers, including Bank of America, consider raising their targets, suggesting the median S&P 500 forecast might be too conservative.
  • Even bearish analysts like Morgan Stanley’s Michael Wilson acknowledge the potential for broader market gains, though Wilson’s target implies a potential decline.

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