Markets Week Ahead: S&P 500, US Dollar, Crude Oil, Gold, FOMC, Liquidity Conditions
Equities charged higher across the globe this past peek as the ‘risk-on’ tone in financial markets continued recovering after some choppiness in late January. On Wall Street, the Dow Jones, S&P 500 and Nasdaq Composite climbed 1.00%, 1.23% and 1.73% respectively. Meanwhile, the FTSE 100 and Nikkei 225 advanced 0.94% and 2.72% respectively.
The rosy mood certainly made its way into foreign exchange markets, where the anti-risk US Dollar and similarly-behaving Japanese Yen were some of the worst-performing G10 currencies. Meanwhile, the growth-oriented Australian Dollar outperformed its major counterparts. Taking a look at commodities, crude oil prices soared 4.67% as gold traded relatively flat.
US fiscal stimulus continues to be a key focus for investors, with President Joe Biden aiming to pass his US$1.9 trillion Covid-relief package using budget reconciliation given a lack of Republican support in the Senate. Longer-dated Treasury yields have been on the rise, with the 30-year rate climbing to its highest since February 2020.
Exchanges in China and Hong Kong are offline for the Lunar New Year, with Wall Street closed on Monday for the Presidents’ Day holiday. Expect lower-than-usual liquidity conditions, which raises the risk of volatility around breaking headlines. Speaking of which, the economic calendar docket is still relatively light ahead.
A notable event risk ahead includes FOMC meeting minutes where the central bank may continue to reiterate its accommodative setting without an urgency to expand current QE paces. US retail sales are also on tap. Japanese and Euro Area GDP data will cross the wires as Australia release its latest jobs report. What else is in store for markets in the week ahead?
Last week’s benign US inflation data and bearish comments from the Federal Reserve’s Jerome Powell have undermined the US Dollar and improved the prospects for EUR/USD accordingly.
The three major US indices may extend their broader upward trajectory, carried by fiscal stimulus hopes, an improved fundamental outlook, positive earnings guidance and a weaker US Dollar.
Sterling continues to move higher, with 13 positive weeks in the last 15, on marginally better-than-expected GDP data and a successful vaccination program.
The Australia Dollar may continue to gain ground on the back of surging iron ore prices, despite the RBA’s decision to extend its current $100 billion bond purchasing program.
USD/MXN to move in line with overall market sentiment as economic data dries up.
Gold prices subdued, familiar resistance caps. Downside risks remain unless USD cracks key support.
The anti-risk US Dollar weakened this past week as the Dow Jones, S&P 500 and Nasdaq Composite climbed. Has the dominant downtrend resumed course?
Crude oil's rally looks set to extend further after the IEA pointed to near-term risks for 2021 in an updated report. However, a short-term pullback may be needed before higher ground is seen.
The Australian Dollar has extended its rebound this past week, but the jump hasn’t put the currency in line for new multi-year highs on a larger bull trend…yet.
WTI crude oil remains in neat upward channel structure that continues to be a guide for its generally bullish outlook.
The DXY Index’s rebound in recent weeks has done little to revert the major technical damage sustained in recent months.
Gold prices continue to struggle, even as the US Dollar falls back. Risk appetite is surging, reducing demand for the safe haven.
US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD
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