Global market sentiment continued improving this past week. On Wall Street, futures tracking the Nasdaq, Dow Jones and S&P 500 closed +1.84%, -0.31% and +0.23% respectively. Tech stocks saw a disproportional boost. In Europe, the DAX 40 and FTSE 100 closed +0.67% and +0.22% respectively. Meanwhile, Japan’s Nikkei 225 gained 1.35%.
Strong US ISM Manufacturing PMI early in the week helped cool fears of a recession by underscoring the resilience of the economy. This was then followed up by an impressive jobs report. The United States unexpectedly added 528k non-farm payrolls while wage growth also surprised higher.
But, a disconnect seems to be brewing. Since June, markets have been pricing in rate cuts from the Federal Reserve in 2023. This is despite a 75-basis point hike late last month. Rising fears of an economic slowdown seem to be boosting bets of a Fed pivot. Such an outcome might occur of inflation materially slows, but that might be a far stretch for this year.
As such, Fed policymakers spent most of this past week downplaying market expectations of a pivot next year. This is setting up for disappointment in sentiment and the jobs report further underscored this. Looking at Fed Funds Futures, an additional 25-basis point rate hike was priced in from markets for this year.
With that in mind, the US Dollar, gold, Euro, Japanese Yen and Wall Street are setting their sights on the next CPI report. Next week, US headline inflation is seen slowing to 8.7% y/y for July. That would be down from 9.1% prior. Worryingly, the core gauge is expected to rise to 6.1% y/y from 5.9% prior. Another strong print could easily eat away at the market gains seen in recent weeks.
Other key economic data to watch include Chinese inflation and UK GDP figures before the US wraps up the week with University of Michigan Sentiment. Earnings season is also in play and Wal Disney Co. is reporting. A particular focus will be on their streaming service performance. What else is in store for markets in the week ahead?
US DOLLAR WEEKLY PERFORMANCE VS. CURRENCIES AND GOLD
US equity markets are on the back foot after the latest blowout NFP report with Wednesday’s US inflation release set to be the next market driver.
The U.S. dollar is likely to stay supported in the near term on bets that the Fed will remain committed to a hawkish tightening cycle amid red-hot labor markets and elevated inflation.
Gold’s recent rally stalls as the latest NFP report tempers recession fears for now.
GBP Suffers on the BoE’s Bleak Outlook
The update to the US Consumer Price Index (CPI) may sway USD/CAD as the Federal Reserve struggles to reduce inflation
Stocks have generally been strong, but that outlook could come under some pressure in the days/weeks ahead; scenarios and levels to watch.
GBP/USD remains under pressure heading into what is a moderately uneventful week from a UK standpoint with UK GDP under the microscope.
US Dollar snapped a two-week losing streak with DXY reversing just ahead of technical support- will the uptrend resume? Key levels on the weekly technical chart.
The Japanese Yen came into the week with a full head of steam, but staged a stark reversal as US Treasury Yields began to rise again. Is there more in store for Yen bears?
Gold prices closed above a key trendline last week, but progress has been somewhat lacking. Meanwhile, silver is struggling to keep up, is this a sign of weakness?
WTI crude oil prices fell nearly 10% last week, dragging prices to the lowest mark since February. The commodity’s chart shows additional losses may lie ahead after breaking below key levels.
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