Global market sentiment continued improving this past week. On Wall Street[1], the Nasdaq[2] 100, S&P 500[3] and Dow Jones gained 3.49%, 2.54% and 1.98% respectively. In Europe, the DAX 40[4] and FTSE 100[5] climbed 2.49% and 1.04% respectively. This is as Australia’s ASX 200[6] rose 1.95% as Japan’s Nikkei 225[7] gained 2.59%.
The improvement in risk appetite dented the haven-linked US Dollar[8], with DXY Dollar Index down 1.31% last week. That was the worst performance since late May. Yet, the anti-risk Japanese Yen[9] outperformed. USD/JPY[10] fell 1.71%, the most since June 2020. JPY’s strength was likely due to external factors.
Treasury yields declined across the board as markets boosted dovish Federal Reserve monetary policy expectations. Now, markets are back to pricing in 2 rate cuts in 2023, indicating a Fed pivot. This is despite US headline inflation running at 9.1% y/y. US 2023 real GDP estimates have been falling, which perhaps is a sign of the markets seeing the Fed capitulate to recession fears.
In the week ahead, we might get a better idea of who is at the helm. A hawkish Fed could easily dispel rising dovish estimates, bringing volatility back into stock markets and likely benefitting the US Dollar. Outside of the central bank, the US will also release GDP and PCE data. The latter is the central bank’s preferred gauge of inflation.
Gold prices[11] performed well this past week, likely due to the weaker US Dollar and Treasury rates. But, due to the busy week ahead, XAU/USD[12] volatility may still be ripe. Crude oil prices[13] have been doing quite
