US Equity markets closed the week strongly, after losses suffered earlier in the week due to stubborn inflation in Europe and rising global bond yields, were wiped out. US 10 year Bond Yields had blown through 4%, but comments by Atlantic Fed President Bostic on Friday, were seen as more ‘dovish’, allowing the 10 year to fall back below 4% and equities rallied strongly. European, US and Asian Services/Composite PMI was all much more positive, rising above 50, into expansion territory. The US Dollar deflated, with the EUR regaining 1.0600, while the GBP bounced back above 1.2000.
The coming week will be focused on inflation, interest rates and Central Banks. The RBA, Bank of Japan and Bank of Canada are all set to make their latest interest rate decisions, with only the Bank of Japan holding steady? Markets will be heavily focused on Federal Reserve Chairman Powell’s, testimony before Congress, on Wednesday and Thursday. Attention will then turn to US Non-Farm Payrolls, released Friday. The January number (517,000) was such a blow-out number, markets went crazy. It was so hot that equities crashed and bond Yields spiked, as a it was a ‘Green-Light’ to the Fed, for more aggressive rate rises. This week is expected to be more temperate.
Commodity currencies are expecting a big week, with the RBA expected to raise rates a further 25 basis points, while the narrative will be watched closely. The AUD will open the week above 0.6750, while the NZD will look to build on 0.6200. The focus will be on the Federal Reserve, global interest rates and bond yields.