The past week brought a major surprise to the markets in the form of the US labour market report (NFP). An increase in employment of 162,000 jobs (against a forecast of just 55,000) drastically altered expectations regarding the outlook for interest rates in the US. This turn of events strengthened the dollar and put immediate pressure on commodities. As we enter the new week, attention is shifting to the next key drivers: central bank decisions, inflation figures and corporate earnings reports, which will shape volatility in the coming days. In light of this, it is worth keeping an eye on markets such as the US100 (Nasdaq 100 futures), EURUSD and GOLD (Gold).
US100 (Nasdaq 100)
The US technology index managed to recoup some of its losses from the previous week, despite mixed market performance following the release of the NFP report. Nevertheless, the data shows that the US economy remains strong. However, Thursday’s financial reports will be the real test of this optimism. The release of results by Oracle (with a forecast earnings per share of US$1.75) and Adobe will be key. In particular, it is worth paying attention to the value of Oracle’s contracted but not yet fulfilled orders and its forecasts for the coming quarters, as the company acts as a barometer for spending on cloud computing and artificial intelligence. On Friday, tech company valuations will be influenced by the US CPI inflation reading.
EURUSD
The main currency pair will start the coming week with diminished hopes that interest rates will remain unchanged. With very strong labour market data and high oil prices, the balance is clearly tipping towards a potential rate rise. On Thursday, the European Central Bank will announce its decision on interest rates. The market currently prices in a rate rise as almost certain. This decision will send a clear signal that inflation in Europe is still viewed as too high. However, the tone of the press conference and the ECB’s new economic forecasts will be crucial for the euro exchange rate. As for the dollar, Friday’s CPI inflation reading (forecast: 3.4% y/y) will determine the direction; following the strong labour market report, this has gained significance in assessing the Fed’s next moves.
GOLD (Gold)
It seemed that gold was set for a marked rebound this week, but rising expectations of a rate rise in the United States could lead to further short-term pressure on the precious metal. Nevertheless, investors’ attention, aside from US economic data (primarily inflation), will focus on ongoing problems in the US bond market. Despite the increased risk of interest rate rises, the market is seeing growing fiscal problems in the US, as illustrated by the continued high levels of gold holdings in ETFs and the further unwinding of long positions in futures contracts on the US and Chinese markets.
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