A wave of risk aversion spread through global financial markets last week, pushing major equity indexes across the United States, Europe and Asia lower. The Dow Jones Industrial Average[1] (DJIA) shed over 1%, while the technology-heavy Nasdaq[2]-100 Index (NDX) outpaced those losses, dropping over 2%. Investors were unimpressed with a set of high-profile earnings reports, including Google, Apple and Amazon.
Elsewhere, energy markets caught a bid as European regulators embraced a previously shunned move to cut off Russian oil[3] exports. Germany’s Economy Minister Robert Habeck, on Thursday, said “We have made a lot of progress on oil[4] and could join an embargo if it happened.” That capitulation was viewed by the market as a green light for the 26-member bloc to move forward on an embargo, although a plan has not yet been released. Brent crude oil prices rose more than 2% through Friday.
The US Dollar[5] and equity markets will be front and center for traders on Wednesday, with the Federal Reserve slated to announce a 50-basis point rate hike. Rate traders are also expecting details on the Fed’s plan to draw down its balance sheet, which ballooned to more than $9 trillion through the pandemic. The DXY index, which hit a multi-decade high, may sell off on the announcement given the market’s rapid repricing of rate hike bets in the overnight swaps market over the past several weeks, a possible “sell the news” event.[6]
Alternatively, if the Fed underdelivers against hawkish expectations, markets may see the central bank falling back behind the curve on inflation. Such a move may bolster gold[7]’s appeal to investors. The Bank of England (BoE) is another possible market mover in the
