Fed: inflation risks on the rise. Gold stabilizes, Europe unsettled ahead of the German elections

The Fed warns about inflation risks, gold eases but is heading for an eighth straight weekly gain, and the US and Russia are negotiating in Saudi Arabia over the war in Ukraine. In Europe, tensions over security.

By Gold Avenue

Europe is rethinking security after the US shift. "Disrupting transatlantic security brings an initial boom for defense stocks, but the future is uncertain." The alliance with the US is wobbling after Vice President JD Vance downplayed the Russian threat. European leaders are pushing for stronger defense and a key role in the peace talks in Ukraine. Defense stocks are rising, but economic doubts remain. The elections in Germany could add to the instability.

In the US, the Dow lost 451 points on Thursday, while the S&P 500 and the Nasdaq fell 0.4% and 0.5%, as investors sold popular stocks after disappointing forecasts from retail giant Walmart. Technology shares were under pressure: Palantir fell 5%, Tesla dropped 3%. Treasury yields declined, with the 10-year note down 5 basis points to 4.18%. Meanwhile, gold fell 0.4% to $2,926.54 an ounce on Friday, but it is up for the eighth consecutive week (+1.5%). On Thursday it hit a record $2,954.69, supported by fears over Trump's tariffs. Analysts see the rally intact above $2,850.

US unemployment benefits rise. Initial claims climb to 219,000 (+5,000), remaining at pre-Covid levels. Continuing claims rise to 1.87 million, signaling that labor demand is still holding steady. Meanwhile, Meta and Southwest Airlines announce layoffs, a sign of growing corporate pressure. The Fed remains cautious on interest rate cuts, awaiting clearer signs on inflation. The president of the St. Louis Fed worries that inflation may remain stuck above 2% and argues for a "moderately restrictive" policy until stability is restored. He sees a greater risk of persistent inflation than of a slowdown in the labor market. Fed officials remain cautious, while uncertainties over trade and immigration complicate the economic backdrop.

As for equity markets, investors are scaling back post-election bets, worried about Trump's tariff threats. The S&P 500 is underperforming Europe, China and Mexico, while small caps, initially seen as the main beneficiaries, are suffering from the impact of higher rates. The post-election boom in cryptocurrencies is also cooling, as uncertainty over regulatory promises weighs on the market. Oil, meanwhile, is rising, with prices topping $72 a barrel on concerns over supply and a weak dollar. A disruption in Kazakhstan and talk of a delay in OPEC+ production increases are pushing prices higher, while US inventories are rising for the fourth week in a row.