Markets week ahead: Nasdaq 100, S&P 500, gold, US dollar, British pound, CPI data

Market volatility cooled in the first full trading week of September after a mostly rough August. On Wall Street, the Nasdaq 100, S&P 500 and Dow Jones climbed 4.73%, 4.17% and 3.1%, respectively. Things were also looking rosy in Europe, with the DAX 30 and FTSE 100 climbing 0.29% and 0.96% respectively. In the Asia-Pacific region, Japan’s Nikkei 225 rose 2.04%.

If the hope was for a less hawkish Federal Reserve, price action in the Treasury market reflected the opposite. The two-year bond yield closed at a new high for this year, pushing 3.45%. Longer-term rates have also been rising, perhaps reflecting rising confidence in the US economy being able to ride out the storm of rapid monetary tightening.

The risk-on mood did dent demand for haven assets, leaving the US dollar at risk. Traders might have also pre-positioned themselves as the Fed entered its blackout period before the September rate decision. A 75-basis point hike remains the priced-in scenario. Meanwhile, the European Central Bank delivered its equivalent jumbo hike, pushing the euro higher.

The divergence between what the US dollar did and how Treasury yields performed meant that anti-fiat gold prices marked time. Sentiment-linked crude oil prices ended the week little changed after initial declines were offset by the improvement in risk appetite to round off the week.

In the week ahead, all eyes will turn to the next US CPI report. On Tuesday, headline inflation is seen weakening to 8.0% y/y from 8.5% prior. While this is a welcome sign, the core gauge is expected to rise to 6.1% y/y from 5.9% prior. The difference between headline and core readings might be explained by fading oil prices. At the same time, it presents a challenge for the Fed as inflation risks increasingly becoming entrenched.

Other notable event risks include United Kingdom’s inflation rate for the British Pound. Soaring energy prices means another headline CPI print seen above 10% y/y for August. Shifting our focus to the APAC region, the Australian and New Zealand dollars are awaiting local employment and GDP data, respectively. What else is in store for financial markets in the week ahead?

US dollar performance vs. gold and currencies

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