Markets mixed as investors eye bigger events

• Dollar flat in data-void session
• Chinese stocks, AUD lead
• Bitcoin tests $25K resistance

The start of the new week has been uninspiring to say the least, although Chinese markets put in a great performance overnight and cryptocurrencies have continued their recent, good, form with Bitcoin nearing $25K. There’s also been a bit of follow-through in risk-taking in FX markets, with the Aussie leading the gains, after the US dollar retreated to close Friday’s session lower. Despite Friday’s down close, though, the Dollar Index still managed to post gains for the third consecutive week. Taking everything into consideration, investor sentiment remains mildly supported ahead of the week’s key events, but rising expectations of more rate hikes and tighter monetary policy for longer is something that is limiting the upside for risk assets in general. This is also something that might provide renewed support for the dollar after Friday’s selling.

On Friday, foreign currencies, gold, copper and several European indices all recovered from earlier weakness to bounce back into the close, and that momentum has carried over into Monday’s session where Chinese equities rallied strongly overnight, leading to some positive follow-through into the European open. However, it is a largely data-void session, with the US also out in observance of Presidents’ Day.

Investors will be looking forward to a busier session on Tuesday when the latest PMIs are published to provide the markets with a snapshot of the economic activity around the world. Later in the week, we will have the RBNZ rate decision, FOMC minutes, the second estimate of US GDP and the Fed’s favourite measure of inflation – the Core PCE Price Index.

Speaking of the Fed, policymakers at the FOMC have again become quite vocal about more rate hikes and high rates for longer in recent weeks, owing to a tight labour market and stronger-than-expected inflation data, with CPI and PPI both surprising last week. Fed's Mester and Bullard were characteristically hawkish on Thursday and floated the idea of more aggressive 50bp rate hikes, although we don’t necessarily think that will be required. More hawkish Fed comments continued on Friday, this time from Barkin and Bowman, although the fact they didn’t say anything dissimilar to the other Fed officials, the dollar bulls decided to take profit ahead of the long weekend.

Whether or not the dollar selling will hold remains to be seen. So far, we haven’t seen anything too significant. All eyes will be on those macro releases as we head deeper into the week.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R