Risk assets surged last week after a softer-than-expected US consumer price index (CPI) cooled inflation and growth concerns. The Dow Jones Industrial Average (DJIA) closed the week with a 2.92% gain. The small-cap Russell 2000 climbed an impressive 4.93%, while the Nasdaq-100 Index (NDX) rose 2.71%. European stocks lagged behind their American counterparts but still mainly closed higher. Asian equity indexes were mixed, although Japan’s Nikkei 225 climbed to the highest level since January, rising 2.62%.
The US Dollar fell against most of its peers as rate traders tempered expectations for the FOMC’s September rate decision. Market pricing through swaps and Fed funds futures show a 50-basis-point hike as the most likely outcome. Federal Reserve members, including San Francisco Fed President Mary Daly, attempted to cool the post-CPI fervor. US retail sales and the FOMC minutes are due this week. Gold prices gained on the prospect of a less hawkish Fed and a weaker USD.
Brent crude and WTI crude oil prices moved higher but the benchmarks remain negative for the month. Natural gas prices in Europe and the United States climbed to near-record levels as drought conditions across Europe threatened the shipment of coal supplies and reduced hydroelectricity capacity. The International Energy Agency raised its 2022 oil demand forecast by 380,000 barrels per day (bdp), while OPEC cut its forecast by 260,000 bpd.
The Reserve Bank of New Zealand is expected to hike its official cash rate by 50-basis-points this week. NZD/USD gained nearly 3.5%, rising to its highest level since early June. The United Kingdom’s June unemployment rate is due out, and the Euro Area’s ZEW economic sentiment survey. Canadian inflation data for July is expected to cool to a 7.6% y/y pace, down from 8.1% in June. And Australia’s July jobs report is seen crossing the wires at +25k.
Gold prices surged after economic data fueled Fed pivot bets. XAU’s rally, fueled partly by short covering, may end soon, especially if the Fed sends a stronger response to ardent investors.
The fundamental forecast for the Euro next week is neutral as the US CPI bounce fades.
The British Pound is in for a rough ride next week with the latest employment, wages, retail sales, and inflation data all set for release
The Federal Open Market Committee (FOMC) Minutes may drag on the US Dollar should the central bank show a greater willingness to implement smaller rate hikes.
NZD/USD rose in the aftermath of a softer US dollar post-CPI. An advancement of demand destruction globally and proximity to China appear likely to keep NZD contained
Stocks continue to hold a bid, but that may soon change; big levels could be met in the days ahead.
The US Dollar’s high was set almost a month ago, and a bearish channel has built since then, making up a bull flag formation. Will Fed speak be able to bring back the bullish trend?
Gold surged more than 7.5% off the yearly lows with a four-week rally now approaching major trend resistance. The levels that matter on the weekly technical chart.