APAC Week Ahead: US inflation may set to cool further

  • A tip to start the week: The market rally of the past few days has been led by a decline in the US dollar with an expectation that US inflation may still subside. This is indicated by bond market prices where the equilibrium rates for 2-year and 5-year US Treasuries are approaching the Fed’s 2% target, suggesting that the Fed’s approach “frontloading rates” may have succeeded in curbing inflation by softening the requirements. However, the Fed will double the amount of balance sheet reduction from $47.5 billion to $95 billion this week, or a so-called “quantitative tightening” program, which could continue to keep markets under pressure with a liquidity squeeze.

  • Market performance: Risk sentiment drove the broad-based market rally, with the tech-heavy index, the Nasdaq, and the most leveraged small-cap index, the Russell 2000, both leading the gains. up more than 4% for the week. However, energy-intensive stock markets, including the ASX 200 and FTSE 100, underperformed due to sharp declines in commodity prices. Chinese stocks were also under pressure due to prolonged Covid lockdowns in parts of the country.

Performance of the main global indices as of September 11, 2022

What are we looking at?

  • The US dollar is losing strength: The dollar index ended lower for the week after hitting a new 20-year high, suggesting market participants are beginning to price in a peak of the Fed’s rate hike cycle, although a rate hike of 75 basis points in September is expected. See the movements of the US dollar
  • Oil prices under pressure: The recessionary fear-induced selloff in oil markets may not end just yet, with China extending its covid lockdowns in Chengdu and another possible 75 basis point rate hike by the Fed in September. Check oil prices
  • Gold on the rebounding trend: Gold found the key support level of 1688 at the week’s low, further weakness in the US Dollar may continue to lead the rebound. See the price of gold
  • Bitcoin Peaks: The biggest cryptocurrency has rebounded strongly from a two-year low near 18,400, a break up of the 50-day moving average could send Bitcoin higher this week. Exchange bitcoins now

Economic calendar (September 12 – September 16)

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