After many volatile moments last week, the market is expected to adjust in the larger part of this week ahead of Wednesday’s Fed minutes and US inflation figures.
Last week started with an upbeat OPEC meeting which saw oil prices reached a multi-year high. However, energy crises in the UK and China together with a reduced oil inventory in the US also contributed largely to the surge. As for the central banks, the RBZN was the first to cut interest rates while BoC is expected to follow but the RBA rate remained unchanged at 0.1%. Meanwhile, the US Fed is expected to go ahead with tapering but the rate cut will most likely be in 2022 as the country currently has its attention more on the next year’s budget and the debate around raising its debt ceiling. The week closed with a disappointing September US employment change – far below the median estimates. However, the unemployment rate dropped. Overall, the dollar faced a minor setback. The Canadian dollar was strong throughout the week.
Massive bullish CAD move started with the massive surge in oil prices together with possible CAD rate cut and then an employment change data that exceeded market expectation. CAD, therefore, ended the week as the strongest FX while the dollar followed closely. On the other side, the JPY was by far the biggest loser as energy crises rocked some parts of Asia amid concern for Covid and the recent political happenings in Japan.
As for the general market risk, there was improved appetite last week until Friday. The S&P 500 completed a green week while risk FX like the Aussie and Kiwi improved together with the obviously dominant CAD. On the other hand, safe havens were handed some beating especially JPY and Gold as a result of the obvious and of course the rising US bond yield at the end of the week.
The week ahead – macroeconomics
This week is very much loaded as well with the US Fed Minutes taking the central stage on Wednesday, hours after the inflation data is released for the same country. The US will taper this year but the idea of a rate hike will be shut down expectedly until 2022. Meanwhile, at the start of the week on Monday, holidays will be observed in Canada and the US to mark Thanksgiving day. Thus, the market might have reduced volatility across the board especially in the New York session. The Aussie employment change and unemployment rate data will come on Thursday before some data in the US including the weekly crude oil inventories and unemployment claims and of course the PPI data. On Friday, the US Retail Sales and FOMC member Williams’ speech to wrap the week up.
General Risk Sentiment
The energy challenges in China have come as a big concern for the market as the global prices stand to be at the receiving end. This could put some short-term pressure on the global GDP and drive bids for safe-havens. On the other hand, Russia’s intervention and the US’s energy stability could encourage investors and drive risks higher. Equities are expected to add to gains this week. However, pressure on the dollar might not cut across the FX board as the greenback is expected to dominate EUR (central bank divergence still intact) and JPY while AUD and NZD should fight back. CAD is expected to remain firmly dominant but with less volatility as energy uncertainties continue to keep the black gold afloat. Gold is expected to depend on the US bond yield. A reduced yield could happen if risk returns thus lifting the yellow metal at some point. However, the metal should continue within a wide range below 1800 for much of the week.