Markets cautious ahead of a busy week

Overnight Headlines

*US stocks closed mostly lower Friday, weighed by Powell comments

*USD turned modestly weaker against its peers, except versus GBP

*Oil settled higher for a seventh consecutive week

*Tech earnings in focus this week with FAAAM reporting

US equities ended last week on a mixed note, but with most markets near all-time highs. Tech weakness dominated on Friday after weak Snap earnings. The S&P500 closed down but was higher for a third straight week. US Treasury yields fell back from their six-month highs. Asian markets are lower this morning. US futures are mixed to kick off Monday.

USD continues to trade in a narrow range, holding just above support at 93.50. Fed Chair Powell sounded increasingly worried about inflation but kept rate hikes off the table. EUR remains trapped below 1.1665. The yen was the best performer on Friday as USD/JPY ended lower at 113.50. GBP was volatile on news the EU is considering ending the post-Brexit trade deal if the UK pulls out of its Northern Ireland commitments.

Market Thoughts – Powell comments, plus the week’s events

Fed Chair Powell spoke on Friday ahead of the blackout period and next week’s FOMC meeting. He said he thinks it’s time to taper. He also stated that supply shortages “are likely to last longer than previously expected”. However, it was “still the most likely case” that CPI would move back towards the 2% target as constraints ease and job gains increase. The market rapidly pulled forward the expected first Fed rate hike with about 50% odds of a hike as early as next June.

It’s a busy week with fresh US growth, inflation numbers and big-tech earnings. Q3 GDP is released Thursday and the core PCE deflator Friday which should push to a new high. We are also hear from the Bank of Canada and ECB at their scheduled meetings. The former may be a “bridging” event with no policy changes until the full review in December. The BoC is expected to taper again from C$2bn to C$1bn. Focus will be on forward guidance and any rate hike talk.

Chart of the Day – Oil tiptoes ever higher

Brent crude is edging north after settling higher for the seventh straight week. Comments from the Saudi energy minister suggest that OPEC+ will continue to adopt a cautious approach to adding new production. Other members of the cartel echo the Saudi view. The Covid-19 outbreak in China does not appear to be a concern as yet.

The bullish move from the break of $77.82 continues. The October high at $86.71 is the next key area for bulls. There’s not much resistance above here (a long-term spike low at $88.52) until we hit round numbers like $90 and $100. Support is $83.38.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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