In the week spanning November 6th to 10th, 2023, the global financial markets experienced continued momentum from the previous week. This period witnessed a broad extension of the earlier moves, characterized by a rally in risk assets, potentially fueled by short covering, while yields sought to establish a foothold.
Market Overview:
1. US Dollar Reversal:
The US Dollar (DXY index) reversed some of its previous week’s losses, primarily influenced by Federal Reserve Chair Jerome Powell’s unexpectedly hawkish stance. The DXY index rallied by 0.7%, closing the week at 105.801.
2. Euro Resilience:
Despite ongoing weakness in Eurozone economic data, the Euro performed relatively well. The EURUSD experienced a 0.4% decline, closing below 1.07, while the EURGBP rose nearly 1% to 0.8737.
3. Pound Under Pressure:
The British Pound continued to face headwinds from weak UK economic data. The upcoming week’s earnings and employment data are anticipated to play a crucial role in determining Sterling’s strength.
4. Commodity Currencies’ Setback:
Commodity-linked currencies faced headwinds during the week, with oil’s sharp decline likely being a key driver. The CAD and NOK fell approximately 1%, while the AUD and NZD recorded losses of around 2% against the US Dollar.
5. Oil’s Decline Continues:
Oil experienced a second consecutive week of declines, with WTI crude falling by 4.4% to close at $77.31. This decline added to the challenges faced by commodity markets.
6. Precious Metals Struggle:
Precious metals faced headwinds as yields and the Dollar moved in tandem, while commodities, in general, experienced a downturn. Gold fell 2.7% to $1,938, and Silver dropped over 4% to close at $22.25.
Market Insights:
Equities Rally:
Equity markets rallied for a second consecutive week, primarily driven by short covering. The broad rally could extend further until positioning and sentiment find a balance. The S&P500 and DAX both rallied around 1%, closing at 4407 and 15324, respectively.
Bonds Face Resistance:
Following the significant rally in the previous week, bonds encountered resistance and retraced marginally. The 10y UST yield rose 7bps to 4.63%, while the 10y Bund fell 0.5% to 129.701.
Cryptocurrencies Display Strength:
Cryptocurrencies continued to exhibit strength, maintaining their correlation with risk and outperforming other risk assets. Bitcoin surged over 6% to $37k, while Ethereum soared 12% higher to $2,050.
The Week Ahead:
The upcoming week is anticipated to be dominated by the US Consumer Price Index (CPI) release, likely influencing the direction of risk assets, yields, and the Dollar in the short term. Additionally, key data releases include GDP and CPI figures from the Eurozone and earnings/unemployment numbers from the UK. Traders are advised to exercise caution and stay informed amid these significant market-moving events. Trade safe and good luck in the week ahead!
