By: Anas-ur-Rasheed Khan
US markets endured yet another turbulent week this week. The S&P500 index is currently down ~1.7% on the week with the last trading session of the week yet to go. The backdrop of the market reaction has left investors bamboozled. On one hand, this week concluded a remarkable stream of earnings announcements, with this earnings season being the best in quite some time. On the other hand, a strong market correction in February, trade war fears and, most importantly, potential interest rate hikes due to an uptick in inflation have led to an indecisive and volatile market. The highlight of the week was certainly the Federal Reserve’s decision to keep interest rates on hold, which led stocks lower over implications that the Fed’s statement provided a hawkish outlook going forward. In sharp contrast to this, the ASX200 crossed the key 6000-point mark after the market correction in February, posting its best weekly advance in more than a year.
Oil dominated the news in commodities this week, with revision of the US-Iran nuclear deal in the limelight. Fears are that further deterioration in US-Iran relationships could lead to lower oil supplies, if sanctions were to be reinstated. Furthermore, the IMF let Venezuela off with a warning, saying that it will expel them from the IMF. This exacerbated supply fears, allowing WTI Crude to end the week around $68.2/barrel.
Gold on the other hand escaped downward pressure from a rising dollar to gain ~$7.1/ounce this Thursday ahead of the Federal Reserve decision to keep interest rates on hold. This decision and the ensuing statement from the Federal Reserve have increased fears the the Federal Reserve might tighten more aggressively, given that it acknowledged inflation was ‘close’ to its 2% target. As a result, an increase market risk expectations have led to a gain in gold prices.
The US dollar continued its streak of gains into this week, ahead of rising bond yields and rising interest rates. The ICE US Dollar Index rose to its highest level since January, advancing ~1.08% this week. The recent advance in the dollar is putting significant downward pressure on commodities in general. Analysts expect this trend to continue going forward, until the pivotal Federal Reserve monetary policy decision in June of this year.
The Euro and the British pound both ended the week lower in relation to the US dollar, currently trading around $1.196 and $1.356 respectively.
US treasury yields fell this week after the Federal Reserve statement was interpreted by bond investors as an indication that it will not deviate from its policy to raise interest rates slowly and gradually. This led the critical 10-year Treasury note yield to fall more than 2 basis points on the week to 2.239%. Over in Europe, Weak Eurozone inflation data reported this week sparked a rally in German bunds, sending yields lower yet again.
Huge news emerged for Bitcoin this week, as Goldmans Sachs announced that it would open it its own cryptocurrency trading desk, nearly sending Bitcoin to two-month highs. Bitcoin is currently trading around $9685.24, all set to breach the $10000 mark.
Sources: MarketWatch, SMH, Bloomberg.