US equity markets finished off the week with a blockbuster of a session, pushing all the major indices to a 4^th straight week of gains with the growth heavy Russell 2000 (+4.93%) outperforming the “Value” Dow (+2.92%) hammering home that risk on was the overriding narrative of the week.

This was the first time since November 2021 that the broad-based S&P 500 has had 4 weeks of positive returns. Last week’s gains were on the back of a softer CPI figure and a better than expected Consumer sentiment reading cooling inflation and growth concerns and sending Fed rate hike expectations crashing, with the previously expected 75bp hike at Septembers FOMC meeting now being priced in as 50bp.

Source: Zerohedge.com

Technically the S&P 500 importantly also crossed and held the 50% Fib retracement from the all time high to bear market lows, this level was closely watched and took on special significance as there has never been a “bear market rally” that bounced back above the 50% fib and then went on to make lower lows.

Though, not all commentators are convinced this is the return of the bull market just yet, notably among them, Michael Burry of the “Big Short” fame.

In FX, unsurprisingly the US dollar struggled as risk on returned to the market, with risk sensitive currencies the AUD and NZD outperforming, Gold also saw a boost, mirroring ueqity markets to post a 4^th straight up week on lowered rate expectations and a softening of the USD.

Looking ahead to this week, a busy calendar awaits with important central bank announcements from the RBNZ, RBA and FOMC which should see some volatility in their respective currencies as traders take to decipher clues on future rate movements which are the main driver of FX markets at the moment.

RBA minutes from their last policy meeting are due to be released Tuesday, expect some possible volatility in the AUD on this on any clues as to the RBA’s future tightening cycle.

Wednesday the RBNZ is widely expected to hike rates another 50bp for the 4^th meeting in a row pushing the cash rate up to 3% as they try to tame rampant inflation, this hike is mostly priced in, but the accompanying rate projection statement is what will drive the NZD, a 50bp hike would put the RBNZ well ahead of their last projection for this time, so an upward revision on where they see rates going is a definite possibility and should see the NZD well bid it it comes to pass.

 

Thursday will see the FOMC release their minutes from the July policy meeting where they hiked by 75bp. With the current whipsawing of rate market expectations between a 50bp and 75bp hike at their September meeting, the minutes will be closely watched and could see some rate hike repricing in the rates markets driving FX moves.