In a shortened week due to the Queen’s Birthday celebration on Monday, the ASX 200 briefly crossed yet another milestone, the 7,400 mark, before coming back down from weekly highs as the Federal Reserve’s tone shifted, indicating the potential for faster than expected interest rate hikes.
Thursday’s Federal Reserve meeting hadn’t expected to throw up too many surprises, but much more hawkish expectations for the timeline of interest rate rises saw US markets suffer their worst day in a month, with the timeline of this hawkishness coinciding with the ‘quadruple witching day’, the quarterly expiration day of US options and futures contracts, which always sees increased volatility, with funds also using the day to rebalance portfolios.
The Euro Stoxx 600 started the week off brightly and looked on course to set yet another weekly high, before hawkish comments from a Federal Reserve official on Friday exacerbated a decline in European financial and energy stocks.
The Asian majors’ indices experienced mixed fortunes, with a rising US dollar hitting the Hang Seng and the CSI 300 hard early in the week. Interestingly, the indices which weren’t as impacted by the rising US dollar sold off late in the week, while the Hang Seng and CSI 300 rising as week closed.
Precious metals came under heavy selling pressure last week, with gold recording its worst week since the March 2020 COVID-fueled sell-off, while Silver saw its worse week since September 2020. Precious metals performed poorly both due to a rise in the US dollar, and due to the hawkish tone from the Feds – while steep inflation forecasts are good for precious metals, the increased likelihood of earlier interest rate rises are bad for gold and silver.
After a brief period of consolidation, oil markets continued their bullish run with a brightening in demand sentiment and OPEC+ continue to indicate a reduction in supply cuts, both of which are bullish signals at this point in the recovery.
Iron ore rose once again, despite China doing its best to ease iron ore prices. Despite threats to have major steel producers absorb costs and thus reduce the attractiveness of producing steel, prices were driven higher as iron ore inventories reached their lowest point since early February, despite an increase in iron ore imports.
Copper prices hit two-month lows as China spooked copper traders by announcing that it would attempt to curb copper price rises by selling reserves – though the quantity of these reserves is unclear. Still, the long-term fundamental strength for copper remains, with record stimulus announced globally, and the structural weakness in copper supply.