Financial markets struggled this week with sharply rising government bond yields and continued uncertainty across energy markets, both of which weighed on investor sentiment. Next week will bring several important central bank decisions and a heavy macroeconomic calendar, with particular focus on data from the U.S., China and Australia. Against this backdrop, markets with the greatest potential for volatility include AUDUSD, DE40 (DAX futures) and gold (GOLD).
AUDUSD
The currency pair is likely to remain in the spotlight next week. The main catalyst will be Tuesday’s Reserve Bank of Australia (RBA) interest rate decision and the press conference with Governor Michele Bullock. Market consensus expects a rate hike to 4.60%. Wednesday’s Chinese PMI data will also be important, given China’s role as a key destination for Australian commodity exports. If the RBA maintains a hawkish tone, it could provide some support after the recent sharp selloff in AUDUSD and the test of the 0.70 level.
DE40 (DAX futures)
The German DAX has attempted to limit losses, but rising bond yields in Germany remain a major headwind. The 10-year Bund yield has climbed to 3.6%, the highest level since 2009, largely offsetting attempts at a rebound. Next week, the outlook for European equities will be tested by a busy macroeconomic calendar. Preliminary German CPI data will be released on Wednesday, followed by final manufacturing PMI readings for Germany and the euro area on Thursday. Speeches from ECB officials will provide additional context. Given the strong preliminary PMI readings, confirmation of an improvement in European activity could support regional equity indices, although investors will continue to closely monitor elevated energy prices.
Gold (GOLD)
Gold prices eventually fell below $4,300 per ounce, although the market did not extend losses below recent local lows. In the coming week, gold will be tested by a series of key U.S. macroeconomic releases. Investors will focus on Tuesday’s JOLTS report, Wednesday’s PCE inflation data and GDP reading, Thursday’s ISM manufacturing index, and Friday’s U.S. nonfarm payrolls report.
Recent labor-market data have been very strong and played an important role in supporting the Fed’s latest rate hike. If those figures are revised significantly lower, some of the recent market moves could be partially reversed. On the other hand, another strong set of U.S. labor-market data could reinforce expectations for tighter monetary policy and put further downward pressure on gold.
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