Nasdaq, Gold, USD, Powell, US PCE, Germany Ifo, China PMI, Australia Retail Sales

Global stock markets slumped while the US dollar rose as risk appetite waned after heavy tightening by global central banks trying to rein in stubbornly high inflation.

The MSCI All Country World Index is down 2.2%, the S&P 500 is down 1.4%, and the Nasdaq 100 is down 1.3%. Germany’s DAX 40 plunged 3.2% and Britain’s FTSE 100 fell 2.4%. In Asia, the Hang Seng fell 5.7%, while Japan’s Nikkei 225 fell 2.7%. Risk-sensitive currencies, including the Australian and New Zealand dollars, fell 2.9% and 1.5%, respectively, for the week.

Market performance in the past week

Source data: Bloomberg; The graph is prepared in Excel.

Note: The global bond proxy used is the Bloomberg Global Total Return Unhedged IndexAmerican dollar; The Commodity Agent used is BBG Commodity Total Return; The hedge fund agent used is HFRX Global Hedge Fund Index.

The Bank of England surprisingly raised interest rates by 50 basis points, compared to expectations for a move of 25 basis points. Norges Bank unexpectedly raised interest rates by 50 basis points and said it expects another increase in August. The Swiss National Bank raised interest rates by 25 basis points last week. Last week, the European Central Bank raised interest rates and signaled further hikes, while the Bank of Canada and the Reserve Bank of Australia abruptly hiked rates earlier this month.

This month, the US Federal Reserve was an exception as it left interest rates unchanged. However, last week Fed Chairman Powell reiterated the central bank’s hawkish stance saying more rate hikes may be needed, adding that interest rates will move at a “delicate pace” from here. Powell said the “goal” of keeping interest rates steady was precisely to slow the speed at which the Fed raised borrowing costs.

The renewed tightening of global central banks comes as inflation, though moderate, remains above central banks’ target. So far, the global economy has been resilient, but the concern is that more aggressive tightening could push the global economy into recession.

Next week begins with three days of the European Central Bank’s Forum on Central Banks and the Business Climate (IFO) in Germany on Monday; ECB President Lagarde’s speech is scheduled for Tuesday, Canadian inflation for May, US durable goods orders for May and US consumer confidence for June. German GfK Consumer Confidence for July, ECB President Lagarde and Federal Reserve Chairman Powell’s speech on Wednesday. Australian retail sales data for May is due Thursday along with US Federal Reserve Chair Powell’s speech, eurozone consumer confidence, German inflation data for June, and US GDP for the first quarter. On Friday, China’s National Bureau of Statistics manufacturing PMI, UK’s first-quarter GDP, German retail sales for May, eurozone inflation for June and US PCE price index are due.

Forecasting:

Euro Outlook: EUR/USD is deviating from the bullish path after rejection at 1.1000. What now?

EUR/USD fails to hold above 1.1000 and turns bearish at the weekend, dropping below 1.0900 and challenging the main trend line support. Will the bears be rejected?

British Pound Sterling (GBP) 1 week ago: Tough week for the British pound

The British Pound ends the week in the red despite the Bank of England’s 50bps hike in interest rates. Fears of an imminent recession haunt the pound.

Australian Dollar Outlook: The US dollar plays with the reversal of domestic bond yields

The Aussie capitulated last week as the US dollar regained the upper hand as the Federal Reserve talked of further hikes and Australian bond markets see clouds ahead. AUD/USD decline?

USD/JPY Price Outlook: More Misery for the Japanese Yen?

The Japanese yen is heading into a week of US data on foot as the Fed and Bank of Japan appear to be diverging once again.

After the USD week: The USD is looking for cues from the PCE data

The US dollar may remain in a range ahead of key US PCE data due on Friday. Can the Fed’s preferred inflation measure move the needle for markets, which aren’t convinced the Fed can hike twice as much this year?

S&P 500 and Nasdaq Forecast: Fed Certificate Brings Markets Back Again

Federal Reserve Chairman Jerome Powell reiterated his hawkish stance on interest rates during his two-day testimony before Congress. Finally, the markets listened

Gold Weekly Outlook: The downward breach may be limited as recession fears grow

Gold made an attempt to recover on Friday as fears of a recession were revived. Is the current sell-off a precursor to the next bullish impulse?

US Crude Oil Weekly Forecast: Prices will struggle with uncertain demand, and higher prices

Energy markets continue to face the toxic mix of oversupply and low demand.

– Text of the article by Manish Gradi, Strategist for DailyFX.com

— Individual articles written by members of the DailyFX team

Connect with Jaradi and follow her on Twitter: @JaradiManish