Global equities were mixed on Monday with U.S stocks closing lower as investors off-loaded tech stocks in the face of rising Treasury yields.
Market players were left on edge as rising commodity prices fuelled inflation fears with sentiment cautious ahead of another busy week for financial markets. In the currency space, the dollar edged higher as investors remained hopeful over the Federal Reserve tapering in November while oil prices extended gains.
Our trade of the week was none other than the mighty dollar. The greenback kicked off Monday on a firm note despite the dismal US jobs report for September. We discussed how the dollar could react to the US inflation report and other key economic data from the United States. Interestingly, the Dollar Index (DXY) concluded the week in losses – dragged down by the improving risk appetite.
On the data front, the unemployment rate in the United Kingdom edged down to 4.5% in the three months to August. In Germany, the ZEW Economic Sentiment dropped to 22.3 in October 2021, the lowest level since March 2020. Interestingly, the Euro weakened against almost every G10 currency for the week excluding the dollar and Japanese yen.
Wednesday was certainly a big day for financial markets due to the US inflation figures and FOMC meeting minutes. On top of that, earnings season kicked off with JPMorgan, America’s biggest bank beating analyst expectations thanks to a $1.5 billion boost from better-than-expected loan losses. In the United States, consumer prices increased 5.4% year-over-year in September after advancing 5.3% on a year-over-year basis in August. This hot inflation report sent Treasury yields tumbling and fuelled speculation over the Federal Reserve raising interest rates sooner than expected.
Infact, this was reflected in Fed Funds futures which pulled forward the first interest rate hike from late 2022 to almost a full 25 basis point hike by September.
In the commodity arena, Gold exploded higher, gaining almost 2% on Wednesday afternoon as the dollar and Treasury yields tumbled following the inflation report.
In regards to the FOMC meeting minutes, officials agreed they should start tapering in mid-November or mid-December.
On Thursday, the market mood improved on recovery hopes and prospects of higher interest rates while oil continued to push higher, driven by the global energy crunch and supply restraints from the world’s top producers. Brent has gained almost 70% year-to-date while WTI Crude is not too far behind up almost 64%.
On the data front, U.S retail sales unexpectedly rose 0.7% in September as consumer demand for goods increased. However, U.S consumer sentiment slipped in October to 71.4 to near a decade low. Global stocks rallied on strong US earnings while gold experienced a sharp decline on Friday, with the selloff intensified by rising Treasury yields and improving market mood. Having failed to conquer the $1800 level, gold may find itself under renewed pressure in the week ahead, especially if prices fail to push back above $1780.
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