Market sentiment took a turn for the worst this past week, with a sea of red seen across the world. On Wall Street[1], futures tracking the Dow Jones, S&P 500[2] and Nasdaq[3] 100 fell 4.4%, 4.8% and 5.3% respectively. Collectively, this was the worst week since the beginning of this year. This is as the DAX 40[4], FTSE 100[5] and ASX 200[6] weakened 4.8%, 2.9% and 4.2% respectively.
Volatility was back on the rise, with the VIX “fear gauge” up 11.85%. There were a couple of reasons why. The first was a more hawkish European Central Bank, which continued adding to the global monetary policy tightening narrative. Then the week wrapped up with unexpectedly higher inflation in the United States, raising the odds of a 75-basis point Fed rate hike in July.
The latter meant a solid week for the US Dollar[7], which outperformed every single G10 currency. It did the best against sentiment-linked ones, such as the Australian and New Zealand Dollars. The Greenback certainly enjoyed the benefit of rising yields, with the 2-year Treasury rate surging past 3% to its highest point since the depths of the 2008 Great Financial Crisis.
Gold prices[8] managed to find some momentum despite a stronger US Dollar and surging bond yields, perhaps capitalizing as an inflation hedge. However, XAU/USD[9] has generally been struggling to rise in an environment of 40-year high inflation. Crude oil prices[10] were little changed, giving up some gains as tighter monetary policy bets worked to cool growth expectations.
All eyes next week are on central banks, with the Federal Reserve, Bank of England and Bank of Japan on tap.
