With risk sentiment unable to get momentum going either way, equities were softer over the last week. With the last couple of weeks seeing limited economic data, price action was mostly driven by headlines on the corporate side and softer commodities. That ought to change this week with 15 central banks scheduled to make a decision on their key rates - led by the Fed, BoJ and BoE. The key message markets will look for from the Fed will be further details on tapering of the USD 120 bn a month asset purchase program. The labor picture has stayed stable since their last meeting with continuing unemployment claims sticking to their downtrend. The other central banks are expected to discuss a reduction in easing too, despite the outside chance of a rate cut from the likes of Turkey.
The US dollar held strong for a second week with most of the EM currencies lower. FX volatility curves got flatter too with the near term volatility picking up, most likely on the event risk from Central Banks. The US yields moved higher with the curve getting flatter with the 10Y still rangebound around the 1.30% mark, though threatening to break higher. Crude closed higher on the week with commodities mixed overall. Metals were mostly in the red - Gold fell close to 2% on the week with support coming in around the 1750 level. The USD debt market was not bothered by the dip in sentiment though. The spreads continued to compress despite record issuance hitting the market in September.China and HK were in the red once again, hitting a pause on their recent recovery rally. Senior officials from China's govt met with Wall Street executives in a bid to assure them of the stability and independence of their markets despite the Party's recent heavy-handed regulatory moves. The Materials sector took a hit overall as well with Energy staying bid in most countries. We have a slow week ahead in Asia with Korea closed for the first 3 days, China closed for the first 2 and Japan closed today. Economic data and central bank releases will be front and center. In the US, we also have a vote in the House on raising the debt ceiling from USD 28tn and the possibility of Biden nominating the next Fed chair - markets expect another term for Powell here.
September 20, 2021
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