Global risk appetite swung wildly last week. Wall Street saw a recovery into the weekend, with the S&P 500 seeing its largest surge since June 2020. Futures tracking the Dow Jones, S&P 500 and Nasdaq closed +1.33%, +0.73% and +0.03% respectively. The VIX ‘fear gauge’ closed slightly lower, but remains elevated. Equities in Europe and the Asia-Pacific were in the red.
A hawkish Federal Reserve continues to be a key fundamental theme, with markets now starting to price in 5 rate hikes this year after the Fed’s January policy announcement. Quantitative tightening is also just around the corner. The US Dollar broadly outperformed its major peers. This is as the sentiment-linked Australian and New Zealand Dollars wobbled.
A combination of rising Treasury yields and the stronger Greenback weighed on gold prices. While earnings surprises from companies in the S&P 500 continue to cross the wires mostly to the upside of estimates, the overall market was seeing negative price action in 24 hours following the data. Crude oil prices also remained elevated.
The week ahead is filled with more central bank monetary policy announcements. We will get those from the RBA, ECB and BoE. This is leaving AUD/USD, EUR/USD and GBP/USD facing elevated volatility in the coming days. If these central banks follow in the footsteps of the Fed, offering hawkish outlooks, market volatility risk could remain higher than usual.
The earnings season is still in full swing. Key companies that will report include Meta Platforms (Facebook), Amazon and Alphabet (Google). US non-farm payrolls will also conclude the week, where traders will be closely eyeing wage data to gauge inflationary trends. It is thus shaping up to be another action-packed week for markets.
US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD
The US Dollar may remain on the offensive next week. The RBA, ECB and BoE may offer hawkish tilts, risking further market volatility. Then, all eyes are on non-farm payrolls.
Fresh data prints coming out of the US may keep the price of gold under pressure as the NFP report is anticipated to show a further improvement in the labor market.
Fed Chair Powell unfazed by recent stock market rout, aggressive policy tightening priced in.
The Australian Dollar is under the pump despite favourable fundamentals as the US Dollar surges on the back of a hawkish Fed.
Bitcoin’s latest recovery is looking increasingly tired as it nears a zone of important resistance.
Oil has rallied sharply over the past two months and appears overbought by some metrics, but prices may remain supported over the short term on rising geopolitical tensions in Eastern Europe.
The S&P 500 ranged after an early-Monday meltdown, but the Nasdaq 100 is nearing completion of its worst month since October of 2008. Are stock sellers done or just taking a break?
Gold weakness is bringing in a meaningful level of support that has been in play numerous times since 2020; scenarios to watch in the days ahead.