Week Ahead: Market turbulence continues on Fed’s hawkish pivot

Equity Markets

US equity markets took a dive on Friday as turbulence in the markets continued after the US Federal Reserves hawkish pivot on Thursday. The Dow Jones shed over 500 points or -1.58% as investors mulled the fallout from the Feds policy shift.

World equity markets followed the lead of the Wall st with significant drops seen across the board in the Eurozone, UK, Australia and Asia. The Australian market came under extra pressure as the resultant rise in the US dollar has seen sharp drops in commodities, Copper being the big loser for the week.

Source: Bloomberg

Economic Releases – The Week Ahead

Market turbulence looks set to continue this week with the heightened focus on the Fed and inflation. Fed Chairman Jerome Powell will be testifying before Congress on Tuesday (Wednesday morning AEST) where traders will be looking for extra clues on the Fed’s policy going forward. Friday sees key US inflation data released when the Fed’s preferred inflation measure, the personal consumption expenditures inflation index, is scheduled.

Later tonight will see ECB President Lagarde testifying at a virtual hearing before the European Parliament Economic and Monetary Affairs Committee. Any hawkish tilt from the ECB will see some volatility in the Euro and Eurozone equity markets.

Wednesday there are important manufacturing figures out of the EU’s biggest manufacturer Germany and later that night from the US that will be indicators of how the economic recovery of those two nations is progressing.

Thursday we have another closely watched Central Bank’s meeting with the Bank of England’s Monetary policy statement set to be released. With UK inflation figures running hot there is building pressure on the BoE in respect to their accommodative policies, whilst the BoE is expected to stand pat, a hawkish surprise is a distinct possibility.

FX Markets

On the back of the Fed’s hawkish end to their policy meeting last week, the US dollar has surged against all major currencies.

The tight ranges that EUR, GBP and AUD have been trading in most of 2023 have been broken and further US dollar strength is expected by most analysts this week. The AUD in particular took a battering with US dollar strength and falling commodity prices being a double hammer blow. AUDUSD broke its 2023 support and has set new lows for the year.

Source: GO MT4