The Federal Reserve (Fed) hiked the federal funds rate by 75 bps last week at its November Federal Open Market Committee (FOMC), affecting all sectors.
Forex
Source: Bloomberg. Click to see full size.
The euro got a boost towards the end of last week after a better-than-expected services Purchasing Managers’ Index (PMI) figure for October, a relatively hawkish commentary from the European Central Bank President Christine Lagarde, and the US non-farm payroll numbers. While the job numbers beat expectations, unemployment came in higher than expected, pushing the euro upwards as markets reacted.
Meanwhile, the pound fell to a two-week low due to policy divergence between the Federal Reserve and the Bank of England (BoE). The BoE warned that the UK is expected to experience a lengthy recession, with the economy unlikely to recover until mid-2024.
Midweek, the Fed surprised markets with a hawkish monetary policy stance, boosting the US dollar. Federal Reserve Chairman Jerome Powell tempered expectations of a slowdown in tightening and reaffirmed the Fed’s aggressive path this year.
Meanwhile, the Eurozone is likely to be dominated by retail sales in the coming weeks, while the US is expected to be largely focused on inflation and consumer sentiment.
Across the Atlantic, GDP will be the focus of the UK. The UK’s weakening currency, combined with an expected recession, may not have as much market-moving potential as before.
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Commodities
Source: Bloomberg. Click to see full size.
After struggling to gain traction midweek due to the Fed’s hawkish tone, XAU/USD recovered and closed the week in positive territory due to a strong market sentiment and widespread dollar weakness.
As China grapples with fresh outbreaks of Covid-19 and prospects of lockdowns loom, developments around the country’s zero-Covid policy will be closely watched this week by market participants. On the back of an improving outlook for demand, gold prices are likely to rise if China softens its stance on reopening.
The Consumer Price Index (CPI) data will be released by the US Bureau of Labor Statistics later this week. Gold price could come under renewed bearish pressure if inflation prints remain strong, reminding traders of the Fed’s willingness to maintain aggressive tightening. However, the yellow metal is likely to benefit from a softer-than-expected Core CPI reading, which will allow markets to reduce the 75 bps December rate hike bets.
As the dollar eased on Friday, oil prices rose despite recession fears and Covid outbreaks in China. The market is still under pressure from supply concerns as Europe is preparing to embargo Russian oil and crude stockpiles are being reduced in the US.
Cryptocurrencies
Source: Bloomberg. Click to see full size.
The cryptocurrency market has been in the green for the second week in a row. The market giants Bitcoin (BTC) and Ethereum (ETH) usually lead the way, but they took a back seat last week as other currencies saw spectacular increases.
In the past seven days, Bitcoin has gained about 3%, while Ethereum has risen around 2%. Their prospects of further progress were dented by the Fed’s Wednesday announcement of yet another 75 bps rate hike.
Among the major gainers, Binance Coin (BNB) rose 18.6%, Litecoin (LTC) gained 25%, and Algorand (ALGO) was up by 24%.
The US Bureau of Labor Statistics will issue the October CPI figures on Thursday. These are key figures that the Fed will take into account when contemplating future rate hikes, and it has the potential to have a substantial influence on cryptocurrencies too as any probable future hike may cause a downward price pressure on them.
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US stock markets
|
Name of the index |
Friday’s close |
*Net change |
*Net change (%) |
|
Dow Jones Industrial Avg (Wall Street 30) |
32,403.22 |
-458.58 |
-1.40% |
|
Nasdaq (US Tech 100) |
10,857.03 |
-689.18 |
-5.97% |
|
S&P 500 (US 500) |
3,770.55 |
-130.51 |
-3.35% |
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
Stocks plummeted as the Federal Reserve shattered market expectations of a monetary policy shift with its 75 bps hike. It marked the Fed’s fourth straight 75 bps raise, bringing the rate from near zero to 4.0% in just eight months, an unparalleled rate of hikes for the US economy.
The repercussions of a poor earnings season for bellwether stocks like Facebook parent Meta Platforms, Amazon.com, and Microsoft continued to weigh heavily on tech stocks. Amazon said late last week that it was halting corporate employee recruiting, further dampening mood.
Despite the fact that it is now a private corporation, mass layoffs at Twitter under new owner Elon Musk have added to the sector’s gloom. To compound matters further, Meta is also likely to downsize its staff.
The October CPI inflation data may provide an insight into the current course of consumer prices and will likely impact the Federal Reserve’s monetary policy agenda. On Friday, the University of Michigan will issue its preliminary Michigan Consumer Sentiment Index (MCSI) for November, offering an important update on consumer confidence.
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