The Week Ahead for the Markets: Dow Jones, US Dollar, Gold, USD/JPY, GBP/USD, FOMC, BoJ, BoE, SNB

Sep 19, 2022

Last week, as market confidence deteriorated, equities indices and other risky assets fell while the safe-haven US Dollar increased. Market-based FOMC bets shot up when August's consumer price index figure exceeded expectations; presently, there is a roughly 1-in-5 likelihood that the Federal Reserve will raise interest rates by 100 basis points. The high-beta Nasdaq-100 Index dropped 5.77%, while the Dow Jones Industrial Average fell 4.13%. Bond yields increased. It increased 31 basis points to reach its highest level since October 2007 for the policy-sensitive 2-year rate.

The stronger US dollar and higher US yields dampened market confidence worldwide. In that order, the ASX 200 in Australia, the Nikkei 225 in Japan, and the Hang Seng Index in Hong Kong reported losses. The Euro Stoxx 50 Index lost 1.96%, and the German DAX dropped by 1.66%. European natural gas prices decreased by more than 9% as EU gas storage levels increased, reaching 84.71% capacity as of September 14. In advance of the winter, the bloc's supply has been strengthened thanks to increased LNG supplies from China.

Despite Australia's August jobs report showing a rebound from July, which firmed up rate rise predictions for the Reserve Bank of Australia's October meeting, the Australian Dollar dropped nearly 2% against the US dollar. NZD/USD dropped under the 0.6 mark. The GDP growth rate for the island nation climbed by 1.7% from the first quarter to the second. Although the Japanese Yen is still close to the 144 level, traders do not anticipate a policy change due to the Bank of Japan's rate decision. Following last week's rate check, viewed as a potential precursor to intervention, Governor Kuroda is anticipated to make a statement regarding the exchange rate.

Prices for crude oil decreased for the third week. The cost of the commodity was impacted by China's continuous COVID lockdowns, a stronger US dollar, and mounting central bank rate hike bets. On September 9, the US Energy Information Administration (EIA) reported an increase in oil reserves of 2.44 million barrels. Traders were alarmed by FedEx's pessimistic prognosis, which warned of a worldwide downturn and cited weakness in Europe and Asia.

This week, two significant central bank decisions are expected in Europe. The CHF could gain from an SNB rate increase of 75 basis points. Against the Euro, the Swiss Franc traded at its highest level since January 2015. About the Dollar, the British pound dropped to a new multi-decade low. According to overnight index swaps, the Bank of England is expected to raise rates by 50 basis points on Thursday, but the weaker pound and increased FOMC bets could result in a surprise 75-bps increase. The UK observes a bank holiday on Monday.