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Markets Week Ahead: Nasdaq 100, US Dollar, BTC/USD, Crude Oil, PCE Data, Growth Woes (Jun 27, 2022)
Global market sentiment improved this past week. On Wall Street, futures tracking the Nasdaq 100, Dow Jones and S&P 500 gained 7.25%, 5.25% and 6.34% respectively. In Europe, the Euro Stoxx 50 and FTSE 100 both climbed roughly 2.75%. Meanwhile, in the Asia-Pacific region, Japan’s Nikkei 225 and Australia’s ASX 200 rose 1.23% and 0.77% respectively.
Stock traders found some comfort in weakening government bond yields. The 2-year Treasury yield weakened 3.83% last week and is down over 10% from this year’s high so far. The finalized University of Michigan survey of inflation expectations unexpectedly cooled for June, perhaps an early stage that inflation might have found a turning point.
As a result, the US Dollar weakened against its major peers, suffering from a combination of improving sentiment and falling Treasury yields. One would think that the sentiment-linked Australian and New Zealand Dollars would perform handsomely in this environment, but that was not the case. Bond yields fell more strongly in Australia and New Zealand, hurting AUD and NZD.
Australia is an economy closely tied to the global business cycle, making it vulnerable to rising fears about slowing growth across the world. Speaking of which, this will likely become the next big theme in the coming months as central banks tackle high inflation. Trying to reverse rising prices is one thing, but subsequently finding a sweet spot without overshooting is another.
It is also not surprising to see crude oil prices soften amid rising concerns about recessions. The commodity is quite heavily linked to global growth estimates. Bitcoin prices have also slowed their astronomical descent. Cryptocurrencies are in general very vulnerable to a rising interest rate environment. BTC/USD’s stabilization likely reflects optimism about inflation’s turning point.
What is in store for the week ahead? From the United States, all eyes are on the Fed’s preferred gauge of inflation, core PCE. It will be for the same period that headline CPI data surprised higher. Another strong print could easily reverse some of the optimism we have been seeing in markets. Speeches from various central bank heads are also due. German consumer confidence and inflation are due.
