Markets Week Ahead: Dow, Gold, Oil, US Dollar, Yen, Inflation, Covid

Markets were relatively quiet this past trading week, though there were some bouts of volatility. Major stock indices continued to oscillate higher with the Dow Jones, Nasdaq, and S&P 500 each gaining about 1% on balance and notching new all-time highs. Arguably most eye-catching was the ASX 200, however, given its 6% rally on the week. This came on the heels of some stabilization in recent selling pressure across neighboring Chinese equities. And while the latest RBA decision revealed that the central bank intends to forge ahead with taper plans, confidence in medium-term outlook seemed to spur investor risk appetite.

The Bank of England gave its own monetary policy update that struck a similarly hawkish tone. In fact, the BoE announced a reduction to its policy interest rate threshold for further unwinding its balance sheet. This helped fuel Pound Sterling strength against most FX peers like the Euro, Yen, and US Dollar. GBP price action surrendered gains to its US Dollar counterpart later in the week, though, as markets reacted to solid nonfarm payrolls data. In fact, the broader US Dollar Index ended up recording its biggest weekly gain since the June Fed meeting that was accompanied by hawkish dot plot projections.

US Dollar demand across the board of major currency pairs tracked the shift higher in Treasury yields with the ten-year spiking a noteworthy 17.3 basis points off its weekly low. Sovereign bond yields rebounded more broadly too, which created headwinds for the Japanese Yen. As such, this influx of US Dollar strength and rotation out of bonds benefited USD/JPY in particular. Rising yields also placed considerable downward pressure on precious metals. Gold price action plunged -3% on the week while the price of silver plummeted nearly -5% to print its lowest weekly close since December 2020.

As for other major commodities, we saw crude oil price action nosedive -7.7% to record its sharpest weekly decline in nine months. The commodity, which is closely linked to outlook for global GDP growth, faced heavy selling with traders growing increasingly weary over the latest wave of covid and the delta variant spreading across developed economies. Not to mention, the latest round of manufacturing and services PMI data out of the United States, though strong overall, highlights the possibility that economic growth might be peaking.

Correspondingly, how crude oil trades next week has potential to set the tone for broader risk trends. So too does data on covid-related hospitalizations and ICU bed capacity given their posturing as lockdown bellwethers. The DailyFX Economic Calendar outlines additional high-impact event risk facing markets in the week ahead. US inflation data stands out in particular as does the consumer sentiment report. Looking elsewhere, the release of UK GDP data and an interest rate decision from Banxico could garner some attention from traders. What else is in store for markets in the week ahead？