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US stock indexes finished the week with healthy gains despite ongoing bond market volatility that sent US rates to fresh multi-year highs. The benchmark 10-year Treasury yield rose as high as 4.335%, its highest level since November 2007. Equity traders weren’t all that phased by the moves, as higher rates effectively tighten financial conditions. That said, the need for further Federal Reserve action lessens—a tailwind for equity valuations. The S&P 500 Index, Nasdaq-100 and the Dow Jones Industrial Index finished the week with gains of 2.37%, 2.39% and 2.47%, respectively.
The US Dollar DXY Index took a breather last week, falling around 0.75% as the policy-sensitive 2-year yield lost steam. The Federal Reserve entered a blackout period on Saturday, which forbids FOMC members from commenting on monetary policy before the November 02 policy meeting. Rate traders see a terminal rate of around 5% early next year, leaving plenty of rate hikes on the table between now and then. The US is set to see updated purchasing managers’ indexes from S&P Global. US factory activity has remained stubbornly strong, with a Fed report stating that factory production utilization hit the highest level since 2000. The consensus estimate sees manufacturing PMI for October remaining in expansion territory at 51.0, according to a Bloomberg survey.
Chinese President Xi Jinping is expected to take the stage on Sunday, marking the start of a third term in office. That would be a precedent-breaking move that further consolidates his power and influence as “leader,” a revered term previously reserved for Mao Zedong, which has started circulating among his followers. The Chinese Yuan weakened around 0.5% against the Dollar, hitting a record low. Traders are keen to see GDP numbers due this week after the high-impact print was delayed last week. The Bloomberg consensus sees China’s third-quarter growth rate at 3.5% from the previous three-month period.
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The Japanese Yen was nearly unchanged from last Friday after USD/JPY trimmed mid-week strength. A broadly weaker USD helped alleviate JPY pressure, but policymakers likely intervened after the exchange rate rose above the 150 level. A still-ultra-dovish Bank of Japan is casting doubts on the ability of Japan’s Ministry of Finance to hold the line against JPY shorts, although capitulation now would signal an embarrassing failure and likely see the Yen plummet. A Kobayashi Maru indeed.
Elsewhere, US natural gas prices plummeted over 23% as warmer weather across much of the Continental United States combined with a larger-than-expected US inventory build dashed supply shortage fears going into the winter months. Brent oil prices rose a modest 1.9%, while WTI crude slipped 0.6%. The US and global benchmarks remain on track to break a 4-month losing streak, although prices are still well off yearly highs.
It is an eventful week ahead in terms of rate decisions. On Wednesday, the Bank of Canada is expected to hike its benchmark lending rate by 75 basis points, according to overnight index swaps (OIS). Canadian inflation remains above estimates, with the latest core CPI reading at 5.4% in September solidified chances for a larger hike. The Canadian Dollar rose nearly 2% against the Greenback on the week. The European Central Bank (ECB) will announce its interest rate decision on Thursday. OIS pricing is showing an 89% chance for a 75-bps rate hike. EUR/USD rose around 1.5% last week.
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US Dollar Performance vs. Currencies and Gold
Fundamental Forecasts:
S&P 500 Week Ahead Forecast: Megacap Tech Earnings in Focus as Fed Enters Blackout
Quarterly results from Alphabet, Microsoft, Meta Platforms, Apple and Amazon will take center stage next week as the Fed’s blackout period temporarily reduces attention on monetary policy.
Euro Forecast for the Week Ahead: EUR/USD Eyes Jumbo ECB Rate Hike as Recession Looms
The Euro is facing an anticipated 75-basis point rate hike from the European Central Bank in the week ahead. Despite recession woes, the ECB will likely press on to fight persistent inflation.
British Pound Forecast: Increased GBP Volatility as Tory MPs Decide on a New Leader
After a week of complete turmoil and the PM’s resignation, things will get no better next week as the search for the next PM concludes.
Australian Dollar Outlook: Crucial CPI Data May Prompt RBA Action
The Australian Dollar has been chopped up of late as the global macro environment has created a high degree of uncertainty, but domestic CPI will be the focus in the week ahead.
Gold Prices Eye US PMI, Jobless Claims Data as FOMC Members Go Dark
Gold prices fell last week as Treasury yields rose amid hawkish Fedspeak. With a FOMC blackout period among us, traders’ focus turns to economic data. US PMI data is front and center for gold and rate hike bets.
USD/CAD to Eye Yearly High on Smaller BoC Rate Hike
USD/CAD may attempt to retrace the decline from the yearly high (1.3978) as the Bank of Canada (BoC) is expected to deliver a smaller rate hike.
BTC/USD Price Outlook: USD Strength & Rising Yields Hold Bitcoin Back
As the Federal Reserve continues to raise rates at the most aggressive pace since the 1980’s, rising yields and USD strength does not bode well for risk assets.
Technical Forecasts:
US Dollar Technical Forecast: USD Rally Vulnerable – DXY Levels
An outside-weekly reversal off resistance threatens a larger pullback in the US Dollar- battle lines drawn. The levels that matter on the DXY weekly technical chart.
S&P 500, Nasdaq 100, Dow Jones Forecast Looking Bullish
Heading into a new week of trade the stock market looks poised to build further on last week’s gains; levels and scenarios to watch.
Japanese Yen Technical Forecast: USD/JPY, EUR/JPY, GBP/JPY
The Yen was on a wild ride last week as the BoJ intervened again after a parabolic move in USD/JPY, but will they be able to tilt the trend?
EUR/USD Technical Outlook: Big Picture Remains Weak
EUR/USD has struggled to extend gains in recent weeks, raising the risk of a dead-cat bounce. What is the outlook and the key levels to watch?
The precious metal and silver came within a whisker of the YTD low before rallying higher. Have we bottomed out already?
Crude Oil Technical Forecast: Breakout on the Cards?
An ascending triangle continues to form on the WTI chart, could a breakout materialize in the near future?
Sterling Technical Forecast: Directionless GBP Likely to Remain Volatile
A distinct lack of direction in GBP/USD opens up range trading possibilities. Recent volatility has opened up the pair to extreme price swings, complicating the outlook
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