It’s been another highly volatile week with choppy markets across asset classes. The midweek selloff in equities saw the benchmark S&P500 index clock its worst daily decline since June 2020. Corporate earnings from two of the biggest US retailers fanned the flames. The impact of inflationary pressures and ongoing supply chain disruptions on profit margins brought the outperformance of this sector to an abrupt halt.
One of the key questions for markets now is whether the consumer can hold up while broad-based price rises take effect. This is also the conundrum for policymakers and especially the Fed. Recession fears have hit the dollar recently, as the FOMC strive to achieve a “soft landing” by reining in inflation pressures without choking off economic growth.
A relatively hawkish US central bank should be seen in the FOMC minutes published on Wednesday. This will give us more clues on the Fed’s thinking on how to navigate future policy tightening in such an environment. It should also underpin support for the greenback after its first weekly drop in seven.
The euro and pound have eased from their oversold conditions. This is not surprising when you consider the latter had fallen over 10% from January’s high. The PMI surveys in both the eurozone and UK are expected to show warning signs of the high inflation environment. The long-term downtrend in both these major currencies still remains.
Here are the key risk events on the calendar:
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