Weekly Market Recap

Yet another volatile week came to a close, and the central theme was slowing inflation and a general reduction of upward price pressure. US CPI and PPI both missed the downside and as a result yields & the Dollar retreated. The big question now is whether this move continues further, and this will depend on economic data and the Federal Reserve’s upcoming rate decision.

The US Dollar had already shown weakness with a failure to rally as yields shot higher the previous week. Following the weak US inflation data, the DXY index broke down below 100.80 support last week, closing over 2% lower and showing continued weakness.

The Euro and the Pound both rallied hard against the Dollar but failed to make much progress against other majors. The EURUSD rallied 2.3% to close well above 1.12, while the GBPUSD rallied 2% to close just under the 1.31 level.

Commodity currencies had an absolute monster of a week, being pushed higher by both the weakening Dollar and the strengthening Oil price. Last week the CAD gained 0.5%, the AUD and NZD rallied around 2%, and the week’s best performer was the NOK with a 5.4% gain. Elsewhere in FX, the JPY and CHF all rallied between 2% and 3% against the greenback.

Oil continued its recent good form with another rally. Last week the WTI gained 2%, closing at $75.22.

Precious metals have been waiting for yields to drop in order to start their next leg higher, and they got just that. A faltering Dollar also helped; Gold rallied 1.6% to close at $1,955 and Silver shot 8% higher to $24.94.

Equities remain very resilient, helped higher by falling yields. The major indices still look overvalued but technically there is no reason to be going against this move yet. Last week the S&P500 index rallied 2.3% to 4504 points and the DAX gained nearly 3% to close at 16077 points.

Bonds finally rallied hard as inflation came in much softer than expected. The 10y UST yield fell 22bps to close at 3.83%, which coincidentally is the breakout level from a few sessions ago. Bond bears need to see this level hold, otherwise, we will be seeing a lot lower yields in the near future. Last week the 10y Bund rallied 1.3% to close at 132.711 points.

Finally, crypto-currencies consolidated their recent gains for another week, and they look ripe for another rally. Naturally, if we see a risk-off move in equities cryptos should follow, but for the moment they are looking relatively solid. At the time of writing, Bitcoin is marginally higher at $30,300 and Ethereum is up 3.8% at $1,935.

The Week Ahead:

The week ahead should be another lively one, as we get yet more inflation prints from Canada, New Zealand, the UK, the EU and Japan. With price pressures receding fast, the big question now is: how much lower does inflation go, and how long does it stay there?

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