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Markets week ahead: Dow Jones, S&P 500, US dollar, gold prices, Japanese yen, British pound

The Dow Jones and S&P 500 plunged on a still-hawkish Fed last week and the US dollar roared as Japan had to intervene in the yen as sterling dropped to a 1985-low.

Volatility remained the key theme for global stock markets this past week. On Wall Street, Dow Jones, S&P 500 and Nasdaq 100 futures fell about 4%, 4.6% and 4.6% respectively. Across the Atlantic Ocean, the DAX 40 and FTSE 100 fell 3.59% and 3.62%, respectively. In the Asia-Pacific region, the Nikkei 225 and Hang Seng dropped 2.39% and 4.42%, respectively.

Most of this could be traced back to the Federal Reserve. The central bank didn’t just raise rates by 75 basis points, but Chair Jerome Powell basically in no uncertain terms said that the economy will have to go through some pain to get past the highest inflation in 40 years. And yet, markets continued to underprice how hawkish the central bank is expected to be in the coming years.

Meanwhile, Japan’s government had to step in and physically intervene to prop up the Japanese yen. This followed another status-quo Bank of Japan interest rate decision, opening the door for a divergence to continue growing between it and the Fed. This was the first time the government had to intervene in 24 years!

The British pound especially suffered against the US dollar. GBP/USD fell about 3.6 percent on Friday, the worst single-day outcome since March 2020 and the 2016 Brexit Referendum. This brought Sterling’s exchange rate to its lowest since 1985. Gold prices also suffered as Treasury yields rallied across the board, dampening the anti-fiat yellow metal.

In the week ahead, all eyes turn to a slew of Fedspeak and the central bank’s preferred gauge of inflation. The latter, PCE core, is expected to rise to 4.7% y/y from 4.6% prior. Presidents from the Boston, Atlanta and Cleveland branches are on top. ECB President Christine Lagarde will also be speaking on Monday.

Meanwhile, Russia is attempting to quickly stage votes on annexing captured regions in Ukraine. Italians also head to the polls to elect their 70th government. What else is in store for markets in the week ahead?

US dollar performance vs. currencies and gold

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The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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