Markets week ahead: Nasdaq 100, S&P 500, US dollar, gold, Fed, China PMI, volatility

Global market volatility is back after the VIX Index, commonly known as the ‘fear gauge’, closed at its highest since the middle of July. It climbed 17.26% last week, which was the most since June. The tech-heavy Nasdaq 100 sank 4.26% in the worst performance since June. This is as S&P 500 and Dow Jones futures sank 3.5% and 3.12% respectively.

Things weren’t looking much better in Europe, where the DAX 40 and FTSE 100 weakened by 4.23% and 1.63% respectively. Looking at the Asia-Pacific region, Nikkei 225 futures took a 1.91% loss for the week. What drove this volatility? It mostly came down to the Federal Reserve.

Throughout June and July, traders were pricing in a pivot from the Federal Reserve next year. The annual Jackson Hole Economic Symposium, where Chair Jerome Powell spoke last week, continued to pour cold water on these expectations. Most of 2023 rate cut expectations have been priced out and quantitative tightening is underway.

As a result, the US Dollar gained this past week. Some of the worst-performing currencies were the New Zealand Dollar, British Pound and Euro. Meanwhile, anti-fiat gold prices weakened as the Greenback rallied alongside Treasury yields. Crude oil prices fared better, finishing higher last week. This might have been due to rising bets that OPEC+ might curb output amid falling prices.

All eyes next week turn to August’s US non-farm payrolls report. Signs that the labor market in the world’s largest economy remains tight may underpin Fed tightening bets, risking market volatility. Outside of the US, Chinese manufacturing PMI will give a better idea of how growth woes are shaping up in the world’s second-largest economy. Euro Area and German inflation prints are due.

US dollar performance vs. currencies and gold

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