Global stock markets extended losses this past week as volatility cautiously picked up pace. This has brought the worst 2-week performance in US equities, such as the S&P 500 and tech-heavy Nasdaq 100, since earlier this year. Demand for safety helped boost haven-oriented currencies such as the US Dollar and Japanese Yen. Growth-linked crude oil prices also suffered.
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Prolonging weakness in stocks may have been a combination of rising US-China tensions as President Donald Trump touted a ‘decoupling’ from the world’s second-largest economy. Concerns about lofty valuations in information technology stocks could have also played a role. Meanwhile, the British Pound suffered its worst week in months on rising no-deal Brexit bets.
With investors seemingly becoming increasingly cautious, all eyes turn to the Federal Reserve this coming week. The focus will likely be on its forward guidance and the latest assessment on economic conditions. Its balance sheet hasn’t materially shifted since early July, perhaps leaving markets yearning for further liquidity.
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The Bank of England and Bank of Japan are also on tap for the British Pound and JPY respectively. Will a jobs report bring volatility to the Australian Dollar? There also remains a divergence between the recovery in US equities and a lack of in consumer confidence. All eyes at the end of the week shift to the latest University of Michigan sentiment. What else is in store for financial markets?
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