This morning the market seemed to be holding its breath in a tense atmosphere. Imagine a large ship sailing through high waves, that is the emotional picture of investors as they try to digest mixed signals between hopes for peace and the risk of a protracted war.
Tensions in the Middle East continue to weigh on the market while investors are now waiting for US inflation data that will determine the fate of interest rates.
Crude Oil Is Burning Again
World crude oil prices surged again after hopes of seeing an end to the war between the United States and Iran seemed increasingly vague. President Donald Trump said he was still not satisfied with the ongoing negotiations, thus erasing the smiles of investors who were hoping for a quick solution.
When oil supplies are disrupted in important routes such as the Strait of Hormuz, fuel prices will soar. This is like the increase in the price of household goods that forces us all to spend more carefully because it will push up the overall cost of living.
Gold Loses Its Shine
Gold, which is usually a safe haven for money, is now starting to dull and has plummeted to around $4,450. Gold prices are depressed as investors expect interest rates to remain high for a longer period to combat rising commodity prices or inflation.
For ordinary people, gold becomes less attractive when banks offer higher savings returns. When banks raise interest rates, gold that does not pay any interest or monthly "dividends" will begin to be sold by large investors to pursue profits elsewhere.
US Dollar Continues to Pressure the Market
The US dollar is also getting stronger and continues to climb for now. A strong dollar acts like a magnet that attracts capital out of other assets such as gold and the currencies of developing countries, including Malaysia.
This strength of the dollar also means that goods imported from abroad will become more expensive for us. Investors are now more likely to hold dollars because they are confident that the US economy is still strong enough to survive even in the turbulent world economy.
Main Focus: Inflation Data Throb
The world's attention is now focused on the US inflation report to be published tonight. Inflation is a measure of how much the price of goods has risen and is the main compass for the central bank or Fed to decide whether to raise interest rates.
If the data shows that prices are still struggling to fall, the Fed may raise interest rates. This is the biggest risk being watched because it could slow down business activity and reduce consumer purchasing power worldwide.
The market is now waiting for the decisive moment whether peace talks will bear fruit or inflation will continue to grip. Traders should be prepared for more drastic price movements if tonight's economic data brings surprising news.
