President Trump struck a more reconciliatory tone last Friday by indicating that there could be some degree of flexibility with regards to the upcoming tariffs. The suggestion followed equally reassuring statements from Fed Chair Jerome Powell a couple of days prior. Markets have been especially jittery over the past month and the combined remarks did a lot to assuage fears. The change in sentiment characterised a potentially pivotal week, which saw all three major US indices finish in the green. The Dollar also recouped some losses, dragging the DXY up 0.4% by the weekly close. Gold tapered off late last week after registering back-to-back record highs, perhaps also indicating a shift towards risk-on assets.
The coming week is dominated by boring, but crucial economic data. Manufacturing and services PMIs, inflation and growth figures pepper the economic calendar, culminating in the PCE Price Index on Friday. Not the most headline-grabbing events, but together the data offer a reasonably encompassing view of the global economy. The week will also feature a slew of statements from various central bank board members, most likely providing the same kind of tight-lipped commentary we all know and love. The PCE Price Index is particularly important to the Fed, and by extension to markets at large. Consistent improvements to inflation figures pave the way for future rate cuts, which further bolster the argument for a return to a risk-on environment.
Crypto markets have been somewhat overlooked in recent weeks, but are reacting positively this morning in the Asian session. The financial sphere is caught in a delicate balancing act and it is difficult to say which way the scales will tip. Crypto may well be the canary in the coalmine in this regard. Just as markets are poised in wait-and-see mode, traders would do well to adopt a similarly cautious approach.
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