S&P 500, Gold, US Dollar, Powell, BOE, Japan Inflation, RBA Minutes

By Investor Empires On Jun 18, 2023

Recommended by Manish Grady

Trend trading basics

Global stock markets rose to a 14-month high while the US dollar fell to a one-month low on hopes that US interest rates are peaking and expectations of more stimulus from China.

The MSCI All Country World Index rose 0.6%, the S&P 500 jumped 2.6%, and the Nasdaq 100 rose 3.8%. Germany’s DAX 40 advanced 2.5% and Britain’s FTSE 100 rose 1.0%. In Asia, the Hang Seng rose 3.3%, while Japan’s Nikkei 225 rose 4.5%. Risk-sensitive currencies, including the Australian dollar and the New Zealand dollar, rose 1.9% and 1.7%, respectively, for the week.

The US Federal Reserve kept interest rates unchanged on Wednesday, but noted that the cycle of rally is far from over and that rates may need to rise by as much as 50 basis points on slower-than-expected moderation in inflation and resilience of the US economy. However, the market is skeptical about the Fed’s rate path, with rates showing less than a 100% chance of one rate hike this year, with rate cuts starting as soon as next year. Next week to justify the pessimistic pricing.

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.

Also, the European Central Bank raised interest rates to their highest level in more than two decades on Thursday and left the door open for more rate hikes on stubbornly high inflation. The ECB said it now expects inflation to remain above its 2% target until the end of 2025.

While other central banks are in hiking mode, China cut some key interest rates last week, raising hopes for more stimulus in the coming months to support a fragile economic recovery. Data released earlier in the week showed that Chinese industrial production slowed more than expected in May, retail sales grew less than expected in May while fixed asset investment expanded less than expected in the first five months of 2023. Media reports indicate that Beijing It is considering issuing nearly one trillion yuan of special treasury bonds to help heavily indebted local governments and boost business confidence.

Next week brings a flurry of Fed speeches, including Powell’s. US markets are closed on Monday due to the holiday. Minutes of the RBA’s June meeting and the US Federal Reserve’s speech are due on Tuesday. On Wednesday, the Reuters Tankan and Bank of Japan Japan Monetary Policy Meeting Minutes, UK Consumer Price Index for May, and Canadian Retail Sales for April are due. The Bank of England rate decision, and the Goolsby, Mister and Powell speeches from the US Federal Reserve, are due on Thursday. Japan’s inflation data for May, UK retail sales for May, and Fed’s Bullard and Bostic are scheduled to speak on Friday.

Forecasting:

Next week for the US dollar: Bearish bets increase after the hawkish Fed pauses

The US Dollar Index (DXY Index) has fallen below a key support level indicating that the market appears to be at odds with the US Federal Reserve’s hawkish stance.

Euro Forecast: Bullish Breakout Signals towards the bullish price of EUR/USD

Market skepticism about the Fed’s plans to resume tightening and expectations that the European Central Bank will have to do more in the coming months to tame inflation may push the EUR/USD higher in the near term.

GBP Weekly Forecast: UK CPI plus BoE rate demand add further gains

The British pound rose to a fourteen-month high against the US dollar, and the economic events next week seem likely to see more gains so far.

Australian Dollar Forecast: A sinking US dollar is floating on the Australian dollar boat

The Australian dollar spread higher last week as the US dollar faced severe headwinds and domestic data from the RBA July meeting turned into a “live” meeting. Will AUD/USD survive?

S&P 500, Nasdaq Next Week: The hawkish Fed talks about attempts to moderate the rally

Fed hawks warn of unsatisfactory measures of core inflation and further hikes. However, US data next week is light and unlikely to resist the upside. VIX less.

Gold Weekly Outlook: Gold (XAU/USD) Bears Fail to Find Acceptance Below 100 Day Moving Average, Where Next?

It appears that gold is about to end a pivotal week with more questions than answers as market participants seem to ignore the Fed. Is a $2,000/oz retest on the cards?