The new week is starting on a bright note for risk assets after last week’s impressive moves, especially on the equities. The dollar, on the other hand, ended brightly after an initial slump. Market participants will continue to look forward to the upcoming data, policymakers’ decisions and more importantly the price action from the consensus market sentiments.
The US bond yield closed its biggest weekly loss since June as the Fed look forward to more stimulus cuts. The major central banks continued the gradual withdrawal of their easing tools. The Bank of Canada put an end to bond purchases to shock the market amid an expected rate hike in 2022 while the ECB dropped significantly easing statements for the first time since the pandemic. The risk assets attracted more bids as investors’ appetite diverted funds from safe havens to more risky assets although abysmal GDP figures cut back on the CAD and USD rallies on Thursday. However, the latter quickly recovered on Friday and closed the week at over 0.5% gain following an unchanged inflation expectation and some upbeat reports from the US.
The bright risk sentiment remains
Going into the new week, the market mood remains optimistic and we might see more support for risk assets especially equities and high-beta currencies (AUD, NZD, GBP & CAD) while safe-havens like JPY and CHF will most likely be at the losing end. The dollar is expected to shed some gains if the Treasury yield plummets further, thus giving some strength to Gold for a good part of the week. However, the Fed statement on Wednesday and job reports on Friday will be the key to where the greenback goes next. Meanwhile, oil prices will be at the mercy of the OPEC meeting on Thursday.
Macroeconomics
There is a good number of macro-economic releases to watch out for this week, thus the market is expected to be very volatile. On Monday, the holidays in the Eurozone might ease last week’s strong market momentum until the NY session when the US manufacturing report is released in the early hour.
On Tuesday, the Reserve Bank of Australia is expected to keep rates at 0.1%. However, a cutback on asset purchases is expected. Late in the NY session, we’ll have the employment report in its closest neighbor New Zealand. The market is expecting a significant recovery in the country’s job data. AUD and NZD have been on massive recovery since October and are expected to build on the resurgence especially if the RBA taper its monetary stimulus further and jobs are good or even better than the market expects.
On Wednesday, the US will hijack the spotlight with Fed’s FOMC statement. The market expects the rate to remain at 0.25% but the policymakers could go ahead with quantitative easing taper. The ADP NFP and ISM services PMI will come hours earlier than the FOMC reports.
On Thursday comes another OPEC+ meeting. The oil market continues to benefit from the groups’ gradual release of supply into the market despite overwhelming demand. It’s going to be a big day for the Pound Sterling as the Bank of England releases the latest monetary policies. The market expects an unchanged rate at 0.1% and also looks forward to the bank keeping the current pace of its quantitative easing program.
Finally, on Friday, all attention will be on the job reports in the US and Canada. Canadian employment change and the unemployment rate are expected to be better than last month’s. Also in the US, the labor market in October is expected to outperform that of September. Traders should watch for deviation from the market’s estimates and read the price action for the follow-up effect.