Global market sentiment turned pessimistic this past week, particularly in growth-sensitive equities. On Wall Street, Dow Jones and S&P 500 futures fell 0.23% and 1.19% respectively. Meanwhile, the tech-heavy Nasdaq 100 declined 3.54%. Risk aversion also hit Europe, in the German DAX 40 falling 1.13%. In the Asia-Pacific region, the Nikkei 225 sank 2.46%
A hawkish Federal Reserve continues to be in the focus for investors, with policymakers doubling down on the willingness to deliver 50-basis point rate hikes. Treasury yields extended gains, with longer-term maturities outperforming near-term ones. As a result, the US Dollar strengthened to the detriment of the Euro and British Pound. Rising yields also worked against the Japanese Yen.
Anti-fiat gold prices remained resilient despite this, perhaps capitalizing on rising prospects of more sanctions from the West against Russia as the latter’s attack on Ukraine prolonged. Looking at energy, WTI crude oil prices fell about 1.4% last week, closing at the lowest since the middle of March. Covid-related lockdowns in Shanghai and temporary supply relief may have played a role.
The week ahead is loaded with economic event risk. Inflation continues to be a key topic, with US CPI on tap. The median estimate is for headline inflation to hit 8.4% y/y for March, up from 7.9% in February. This is as United Kingdom CPI is anticipated at 6.7% y/y for the same period. We will also see the impact of rising cost of living on politics, with the French presidential election on Sunday.
Two major central banks are also on tap, with interest rate announcements coming from the Bank of Canada and the European Central Bank. A 50-basis point hike is expected from the former, opening the door for Canadian Dollar strength. No changes are anticipated from the latter, but keep an eye out for hawkish commentary for the Euro. What else is in store for markets next?
Next week’s ECB monetary policy meeting will test President Christine Lagarde’s ability to manage market expectations while at the same time proving that the central bank remains in control.
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Fresh data prints coming out of the US may drag on the S&P 500 index as the Consumer Price Index (CPI) is expected to increase for the seventh consecutive month.
Gold prices may lack directional conviction and chop around current levels in the coming days as U.S. dollar strength and rising yields are offset by elevated geopolitical risk premium and recession anxiety.
The fading loonie has USD/CAD pushing 3-week highs while focus shifts to next week’s U.S. CPI and Bank of Canada rate decision.
Oil prices have plunged 27% off the highs and the correction may yet drill deeper in the days ahead. The technical trade levels that matter on the WTI weekly chart.
Stocks are in a bit of limbo at the moment, making the outlook a bit murky at the moment; levels and lines to know.
Treasury yields have surged but Gold prices just continue to stick at a huge spot of support with long-term implications. Are bulls lurking around the next corner?