It was an eventful week defined by inflation expectations, volatile equities, and action in the FX space.
The mood across financial markets turned cautious on Monday as traders pondered the possibility of the Federal Reserve raising interest rates sooner than expected. Surging Covid-19 cases across the globe also weighed on sentiment, hitting appetite for riskier assets.
Our trade of the week was gold. We questioned whether the precious metal would be in trouble as rising inflation boosted expectations around for higher interest rates. On Tuesday, king dollar weakened, even after Federal Reserve Chairman Jerome Powell stated during his Senate confirming hearing that the central bank was likely to raise interest rates this year.
Mid-week, the US December inflation report showed prices rising at their fastest rate in almost 40 years! The consumer prices index (CPI) jumped to 7% year-on-year, up from 6.8% in November while matching the median forecast from economists surveyed by Bloomberg. We saw the Dollar Index (DXY) slam into 95.00 following the inflation report. Although markets initially offered a calm reaction to the CPI, equity bulls felt the burn on Thursday as rate hike bets rose.
Gold regained its mojo, deriving strength from a weaker dollar and slight pullback in Treasury yields. After experiencing sharp losses last week, the precious metal concluded this week roughly 1.2% higher.
All eyes were on the US retail sales on Friday which disappointed expectations. Sales fell by 1.9% in December, as worries over the Omicron variant and rising inflation hit spending. With this terrible combination hitting household consumption, this could weigh on economic growth in the final quarter of 2022. Interestingly, the probability of a rate hike in March stands at 91.5% as of writing.
In the FX space, the dollar staged a rebound on Friday but still ended the week lower against all G10 currencies. Oil posted a fourth straight weekly gain amid signs that the market is tightening as global consumption remains resilient in the face of Omicron.
In other news, earnings season kicked off with major banks under the spotlight. JPMorgan Chase, the Number 1 U.S. bank by assets showed profit and revenue that topped estimates. Citigroup beat revenue estimates but showed a 26% plunge in profits while Wells Fargo reported better-than-expected fourth-quarter results. With earnings season set to kick into higher gear in the week ahead as more companies publish their fourth-quarter results, it may be wise to fasten your seatbelts for potential volatility!
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.