The Dow Jones Industrial Average[1] (DJIA) dropped for a fourth consecutive week, sliding nearly 2% as risk-sentiment deteriorated sharply into the weekend. The trigger appeared to be a tangible increase in the Fed’s rhetoric to considerably ramp up policy tightening in the face of surging inflation that threatens to derail the economic recovery. Rate traders responded by ramping up bets on 50 basis point rate hikes through overnight index swaps, which are pricing in full 50 bps hikes for the next three FOMC[2] meetings. The United States’ preliminary gross domestic product (GDP) growth is due out on Tuesday, which will show how much the economy grew through March.
That led to a rebound rout in Treasuries that spread through global financial markets. Yields on government debt from UK Gilts to German Bunds shot higher. The French election, this weekend, may see some repricing across some European bonds, but the influence is likely to be negligible under an expected Macron victory. However, a Le Pen victory would likely have a rattling effect, although polls indicate that is an unlikely scenario. The Euro[3] Area’s first-quarter inflation report may elicit some volatile trading in EUR/USD[4]. A Bloomberg survey shows analysts expect Q1 core inflation to cross the wires at 3.1% y/y.
The Asia-Pacific region saw the risk-sensitive Australian Dollar[5] and New Zealand Dollar[6] fall versus the Greenback. Australia is set to report its first-quarter inflation data, with analysts expecting the year-over-year rate to increase to 4.6% from 3.6%. A better-than-expected print may trigger a rebound in the beaten-down AUD/USD[7] pair. A broad weakening in metal prices weakened sentiment around the Aussie Dollar amid ongoing Chinese lockdowns.
