There is no shortage of event risk on the calendar this week with the much-anticipated Fed meeting and the continuation of earnings season sure to keep investors on their toes.
In the case of the FOMC, all Fed meetings are significant but this next one could carry more weight than most given the anticipation that the interest rate summit may finally be reached this week. Jerome Powell will not be this explicit in his remarks, and no doubt the Fed will keep their options open for the possibility of more tightening should inflationary conditions warrant it, but even so the messaging presented this week by the US central bank appears to be the main candidate for determining risk appetite in the near term.
The tech behemoths will be in focus this week as earnings season rolls on and traders will be looking to see if the hype in the aftermath of the previous earnings season is justified. Tech stocks have been the backbone of the broader equity market gains in 2023, so it’s probably fair to say that how the likes of Alphabet, Meta and Microsoft emerge from their earnings reports this week will have a large bearing on how much upside is left in the current equity market rally.
The US dollar has been slowly but surely dusting itself off and clawing back ground against its rival currencies, mostly due to the prior sell-off being overdone. The DXY has found some breathing room above the 100 level again, while Euro and Sterling have come off the boil. The fate of the US Dollar this week will be inextricably linked to the messaging from the FOMC, with the interest rate outlook still the prime driver of sentiment.
The AUDUD rate is trading 1.5 cents lower than the highs of last week, with the Aussie Dollar succumbing to the appreciating USD and also faltering somewhat on the lacklustre round of Chinese data last week.
The AUD will be affected by what happens with the FOMC later in the week of course, but nearer term, the Australian CPI print due on Wednesday this week will help shape RBA expectations and therefore the AUD outlook also.
Gold rally stalls
Elsewhere, the spot gold rally stalled out around the US$1985 region as some resistance levels kicked in. The USD comeback contributed to the gold price easing from the highs. The price has consolidated around the US$1960 level to start the week.
As is the case with many assets, the FOMC meeting this week will be the direction setter for the gold price, with the level of perceived dovishness or otherwise from the Fed likely to have a big say in whether the precious metal makes another run towards the US$2000 level anytime soon.
Meanwhile, the oil price is holding up well despite the USD rebound, which indicates that the supply side restrictions as designed by OPEC+ are having the desired effect in terms of creating upside price pressures.
Looking ahead, with the FOMC meeting looming large on the calendar this week we could see trading ranges start to tighten and some risk-positions taken off the table. If the signalling from the Fed later this week doesn’t match the ‘one more and done’ expectations of the market, this mismatch could be a recipe for heightened volatility.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
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