Markets finished the week on an upbeat note following an action-packed week filled with event risks and central bank decisions. The Dow Jones Industrial Average (DJIA) gained 1.42%, while the tech-heavy Nasdaq 100 closed the week out north of 3%. In Asia, Japan’s Nikkei 225 rose 2.49%, but Chinese stocks underperformed the broader equity market, with the CSI 300 slipping 1.35%. Australia’s ASX 200 rose nearly 2%.
The US Dollar DXY index inched higher despite a drop in Treasury yields. Bond traders bought up Treasuries through the week even after the Federal Reserve opted to begin tapering balance sheet growth later this month. The rate-sensitive 5-year yield put in its biggest drop since June, while the 30-year rate fell at a slower pace. Friday’s non-farm payrolls print resulted in yields accelerating lower to finish out the week. The strong payrolls data wasn’t enough to lift Fed rate hike bets, with the chance for a 25 basis point rate hike for the June 2022 meeting dropping from 45.8% to 41.9% over the past week, according to Fed funds futures.
Meanwhile, the Treasury Department’s latest auction schedule revealed a reduction in its monthly offerings across 2-, 3- and 5-year notes. That suggests the government’s post-pandemic funding needs are beginning to ease. The reduced supply may already be a factor in rising bond prices. This week will see a 3- and 10-year note auction on Tuesday for $36 billion and $39 billion, respectively. Wednesday will bring a $25 billion 30-year bond auction. These offerings will help shed light on bond traders’ post-FOMC appetite for government debt.
After a sharp drop in response to the surprise Bank of England (BOE) rate decision, the British Pound will be under the spotlight this week. The United Kingdom’s GDP report set to cross the wires on Thursday will provide potential event risk for the Sterling. Analysts expect to see the third-quarter figure come across at 6.8% y/y. GBP/USD fell nearly 1.5% into the weekend as rate traders sent Gilt yields sharply lower after the BOE disappointment.
Traders will also be putting Australian employment data under the microscope, with October’s jobs report due out Thursday. The consensus analysts’ expectation sees 50k jobs added, with the unemployment rate ticking higher to 4.7% from 4.6%. The higher expected unemployment rate may be explained by the view that the labor force is expected to grow amid rolled back social distancing restrictions. The RBA continues to fight relatively hawkish market expectations following last week’s rate decision when the central bank let go of its bond-yield target.
US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD
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