Publications
Partners
The dollar advanced, global indices eased and commodities were under pressure last week, driven by the prospect of tighter monetary policy from the US Federal Reserve, with officials talking up the chances of more than one increase in US interest rates this year.
The Fed should consider another hike as early as April, said Philadelphia Fed President Patrick Harker. The markets have been factoring in only one increase this year.
Equity investors tend to dislike any hint of tighter monetary policy as interest-bearing assets then become more attractive. As US interest-bearing assets become more attractive, so does the dollar, thus impacting on dollar-based commodity prices, such as oil and gold.
Global markets
Major stock market indices, including the S&P, FTSE, DAX, JSE, Hang Seng, SSE and the Nikkei, were in the red towards the end of last week. Commodities, such as oil, gold and copper, were lower for the week. The dollar index, measuring the strength of the US dollar against a basket of major currencies, was up.
China’s stocks fell, led by the resource sector, as short selling was resumed by 35 domestic brokerages following a long hiatus.
The broad-based selling in foreign markets also hit the JSE, with platinum and gold shares leading the way. The rand weakened on the back of stronger dollar and equity sell-off.
The pound was under attack as the acts of terrorism in Brussels aided the ‘Brexit’ campaign for Britain to leave the European Union. The uncertainty of a ‘Brexit’ stoked up risk asset-selling in the euro area.
Adding to the malaise was the release of data showing US stockpiles of crude oil jumped. Trading houses are betting that oil markets will remain oversupplied for at least two more years.
The week ahead
The most important data to come out this week will be ADP Non-Farm Employment Change, Unemployment Claims and Average Hourly Earnings, expected to be released Wednesday, Thursday and Friday, respectively. Any surprising data that the US labour market is improving at a faster rate than expected would lead equity and commodity weakness.
Chinese manufacturing data early on Friday could add fuel to the risk aversion fire as a disappointing figure could intensify the threat of a hard landing for China’s economy.
Other market-moving data to be released this week include:
Tuesday
• ZA Private Sector Credit
• US CB Consumer Confidence
Wednesday
• US Crude Oil Inventories
Thursday
• ZA PPI and Balance of Trade
• GB Current Account
Friday
• ZA Barclays Manufacturing PMI and Total New Vehicle Sales
• GB Manufacturing PMI
• US ISM Manufacturing PMI
*Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.
