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Market volatility cooled in the first full trading week of September after a mostly rough August. On Wall Street, the Nasdaq 100, S&P 500 and Dow Jones climbed 4.73%, 4.17% and 3.1%, respectively. Things were also looking rosy in Europe, with the DAX 30 and FTSE 100 climbing 0.29% and 0.96% respectively. In the Asia-Pacific region, Japan’s Nikkei 225 rose 2.04%.
If the hope was for a less hawkish Federal Reserve, price action in the Treasury market reflected the opposite. The 2-year bond yield closed at a new high for this year, pushing 3.45%. Longer-term rates have also been rising, perhaps reflecting rising confidence in the US economy being able to ride out the storm of rapid monetary tightening.
The risk-on mood did dent demand for haven assets, leaving the US Dollar at risk. Traders might have also pre-positioned themselves as the Fed entered its blackout period before the September rate decision. A 75-basis point hike remains the priced-in scenario. Meanwhile, the European Central Bank delivered its equivalent jumbo hike, pushing the Euro higher.
The divergence between what the US Dollar did and how Treasury yields performed meant that anti-fiat gold prices marked time. Sentiment-linked crude oil prices ended the week little changed after initial declines were offset by the improvement in risk appetite to round off the week.
In the week ahead, all eyes will turn to the next US CPI report. On Tuesday, headline inflation is seen weakening to 8.0% y/y from 8.5% prior. While this is a welcome sign, the core gauge is expected to rise to 6.1% y/y from 5.9% prior. The difference between headline and core readings might be explained by fading oil prices. At the same time, it presents a challenge for the Fed as inflation risks increasingly becoming entrenched.
Other notable event risks include United Kingdom’s inflation rate for the British Pound. Soaring energy prices means another headline CPI print seen above 10% y/y for August. Shifting our focus to the APAC region, the Australian and New Zealand Dollars are awaiting local employment and GDP data, respectively. What else is in store for financial markets in the week ahead?
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US DOLLAR PERFORMANCE VS. GOLD AND CURRENCIES
US markets are set for a bumpy ride next week with the latest look at inflation and the quarterly triple witching Friday the standout events.
The eurozone’s woes continue despite an attempt by the ECB to realign medium-term inflation expectations and boost confidence in the euro. EU sentiment and HICP next week
Fresh data prints coming out of the US may curb the recent rebound in the price of gold as the Consumer Price Index (CPI) is anticipated to show sticky inflation.
The Australian Dollar was unable to gain traction despite a lift in rates from the RBA as the Fed and ECB remain hawkish and Chinese growth is mired in lockdowns.
Sterling remains under pressure as the recent rally may prove short-lived. The BoE meeting has been postponed to September 22.
USD/CAD will likely track the broader U.S. dollar trend in the coming days, which will undoubtedly be influenced by the August U.S. inflation report due for release on Tuesday.
Stocks snapped a three-week losing streak with US major indices responding to key technical support. Levels that matter on S&P 500, Nasdaq & Dow weekly charts.
Gold prices leveled this past week following persistent losses in August as traders established support. Silver is making a more aggressive push. What are key levels to watch ahead?
USD/JPY came close to the 1998 high last week before reversing lower; a pullback may continue, but the long-term level appears likely to be tested sooner rather than later.