Markets week ahead: Dow Jones, US dollar, oil, GBP/USD, AUD/USD

Risk assets closed mostly lower last week, although US equity markets trimmed losses heading into the weekend after comments from Federal Reserve Governor Jerome Powell spurred some buying. Mr. Powell stated that larger rate hikes are off the table for the time being. However, the Fed couldn’t guarantee a soft landing for the economy. The Dow Jones Industrial Average (DJIA) shed a bit over 2% for the week, while the high-beta Nasdaq-100 Index (NDX) sank nearly 3%.

The US dollar softened slightly on Friday, but the DXY index remains near its highest level since December 2002. Economists will evaluate the upcoming April retail sales data set to cross the wires on Tuesday as the chances for a recession grow. Analysts see retail sales dropping at 0.9% on a month-over-month basis, which would be up from 0.5% m/m in March. A hotter-than-expected print may help cool fears over an impending economic slowdown.

Oil prices rose into the weekend, nearly trimming all losses from the week, as the high-demand summer season bolsters concerns about lagging supply. Gasoline prices hit a record high, according to AAA. That came despite a build in crude oil inventories at Cushing, Oklahoma. Still, inventory of refined products fell amid surging export demand across Europe and Asia. The gap left by Russian oil has fueled heavy overseas demand for US refined products. It is also important to consider ongoing releases from the Strategic Petroleum Reserve, which is skewing inventory data. Oil prices may increase going into the US Memorial Day holiday weekend later this month.

Across the Atlantic, the British Pound fell versus most of its peers, extending the prior week’s momentum after the Bank of England trimmed its economic growth targets. A weaker-than-expected print on GDP growth for March added to Sterling’s woes. GBP/USD may move on this week’s employment data, with analysts expecting to see 5k jobs added for February, according to Bloomberg data. UK inflation data is also likely to command some attention as markets continue to grapple with forecasting inflation.

The Australian dollar fell to its lowest point since June 2020 versus the Greenback. A further tumble in iron ore prices weighed on the currency, adding to broader pressure from the risk-off tone across financial markets. China’s ongoing fight against Covid-19 has shuttered factories across the economic powerhouse, leading to lower consumption of metal-producing products. AUD/USD may have a chance at a revival this week if the Australian jobs report impresses. Analysts are expecting Australia to add 25k jobs for April, according to a Bloomberg survey. That would be up from 17.9k in March. RBA rate hike bets may increase on a rosy print, potentially pushing the Aussie dollar higher alongside yields.

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