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US and global equity markets have extended Wednesday’s sell-off, with Wall Street opening lower after a weak handover from Asia and Europe. The deterioration in risk appetite has been spreading across global markets. The dollar was firmer, Treasury yields were holding onto yesterday’s gains, while gold, silver and bitcoin were all under pressure alongside equities and major currencies.
Gold prices have been falling in the last few days after last week’s post-FOMC pop faded amid rising interest rate expectations, higher oil prices and a strengthening US dollar. As before, I wasn’t convinced gold would thrive in the current macro backdrop.
The crude oil pullback from monthly highs is running ahead of the headlines, as WTI and Brent ease while Middle East tensions stay unresolved.
Donald Trump’s speech at the UN seems to have poured cold waters on any hopes of a deal. Crude oil, the US dollar and bond yields all bounced back from their lows, causing fresh pressure on foreign currencies, European indices and to a lesser degree precious metals.
Despite mounting geopolitical risks, crude oil prices have declined more than 10% from their monthly highs. Combined with overbought momentum readings on the DXY and dollar pairs, this increases the risk of a near-term reversal.
Crude Oil Weekly Outlook: Despite escalating Houthi attacks on Saudi Arabia and continuing tensions between the United States and Iran, crude oil prices are now facing major resistance that must be overcome before another bullish rally can be confirmed.
Heading into the week ahead, the macro calendar is quieter. But for as long oil remains supported, the US dollar forecast will remain bullish. Not only will oil prices be important for determining the direction for the dollar and USD/JPY, but bond yields too, and by extension, risk appetite.
Assuming the Fed delivers the expected hike, traders will want to know WHAT could prompt another hike, WHY they hiked this time, and HOW to interpret the dot plot.
The BRICS summit call for maximum restraint has not removed the security premium in the energy complex, with an unresolved U.S. Iran situation and transit risk through the Strait of Hormuz still in the frame
The dollar’s recent rebound as a result of rising bond yields and energy prices has been a key theme in the markets, which is helping to drive major FX pairs, gold, silver and copper all lower, while also weighing on stock markets. Among the major FX, the euro has been held back further by continued gains in oil prices while a closely-watched German sentiment survey today also weighed on the single currency.
Gold has fallen relatively sharply in the first half of today’s session. Hardly a surprise, truth be told. The ongoing macro backdrop is bearish for gold and risk assets in general. Rising oil prices are continuing to pile pressure on government bonds, causing their yields to increase. Rising yields, in turn, increase the opportunity cost of holding assets that pay zero interest, not to mention storage and insurance costs.
USD/JPY, Nasdaq Outlook: Rate hikes, AI-related concerns and rising crude oil prices are among the major headlines limiting risk appetite this week while supporting the U.S. dollar and USD/JPY.
The EUR/USD has taken a drop today with the pair coming under pressure from rising energy prices and a rebounding US dollar ahead of the FOMC rate decision, where a hike is all but priced in now. We have a few other central bank meetings and some important data to look forward to as well. For now, all the focus is on energy prices which have rebounded after nothing important happened to de-escalate the situation at the weekend.
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