APAC Week Ahead: US inflation may set to cool further

• A hint for you to start the week: The last few days’ market rally was led by a drop in the US dollar with an expectation that the US inflation may cool down further. This is indicated by the bond markets’ pricing where both the US 2-year and 5-year Treasury breakeven rates fall towards the Fed’s 2% target, suggesting that the Fed’s approach of “front-loading rates” may have successfully reined in inflation by softening demands. However, the Fed will double the balance sheet reduction amount from $47.5 billion to $95 billion this week, or a so-called “quantitative tightening” program, which may continue to keep markets under pressure with tightened liquidity.

• Markets performance: Risk-on sentiment boosted the broad-based market rally, with the tech-heavy index, Nasdaq, and the highest leveraged small cap index, Russell 2000 leading gains, both up more than 4% for the week. However, the energy-heavy equity markets, including ASX 200 and FTSE 100, underperformed due to sharp falls in commodity prices. Chinese stocks were also under pressure due to extended Covid-lockdowns in some parts of the country. 

World major indices performances as of 11, September 2022

What are we watching?

• US dollar loses strength: The dollar index finished lower for the week after hitting a fresh 20-year high, suggesting market participants start pricing in a peak of rate hike cycle by the Fed, though a 75 bps September rate hike is on cards. See the US dollar movements
• Oil price under pressure: The recession fear-induced selloff in oil markets may not end just yet, with China extending its covid-lockdowns in Chengdu, and another possible 75 basis points rate hike by the Fed in September. Check on oil prices
• Gold on the rebounding trend: Gold found the key support level of 1,688 at a week-low, a further drop in the US dollar may continue to lead the rebound. See the gold price
• Bitcoin spikes: The biggest cryptocurrency sharply rebounded from a two-year low level of near 18,400, a bullish breakout of the 50-day moving average may take Bitcoin to surge further this week. Trade Bitcoin now

Economic Calendar (12 Sep – 16 Sep)

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