The selloff in equities and bonds extended on Friday as hot inflation concerns roiled markets ahead of key event risks from Fed and BOJ meetings this week. Tech stocks led losses, with Adobe guidance falling short of expectations, and focus shifts to Nvidia’s GTC event today, where new chips may be unveiled. However, Japan’s equities are open and stronger today, as yen weakness persisted despite expectations of BOJ normalization. In commodities, the focus is on metals, with Copper and Silver ending last week with robust gains and oil prices also trading near highs.
Commodities: Green metals remain in focus, with Copper up 6% last week, although Iron ore slipped below the key $100 mark amid China’s property sector concerns. Gold softened slightly last week after touching highs of close to $2,200 earlier as hot inflation concerns returned, but Silver gained on the back of price action in Copper and touched fresh YTD highs of $25.44 last week. Crude oil also rose last week on IEA, raising its global oil demand forecast and geopolitical risks remaining elevated.
Equities: US stocks ended the week lower as the tech rally paused ahead of key event risks from the Fed and BOJ meeting. NASDAQ 100 was down over 1% on Friday as hot inflation reports last week raised concerns on whether the Fed’s dot plot could shift hawkish this week. Adobe tumbled 14% as its outlook fell short of expectations, and tech focus will be turning to the Nvidia GTC conference this week, where new flagship chips are expected to be launched. Defense and green metal stocks remain in focus.
In Asia, Japan’s Nikkei 225 was back above 39k at Monday’s open, rising 0.9%, as yen weakness continued to underpin a strong run higher in stocks despite expectations of BOJ normalization. China and HK stocks ended last week in gains, and China’s data dump on Tuesday will be in focus.
FX: The Dollar is starting the week on the front foot with several central bank meetings ahead, but the primary focus is on the Fed and the BOJ. DXY index is hovering close to 103.50, and key moving averages are coming just above this level. USDJPY is now close to 149, signaling that a BOJ rate hike is fully priced in, and any dovish commentary this week from the BOJ or a hawkish outcome from the Fed could easily put the focus above 150. EURUSD is holding up better despite a stronger dollar, trading just below 1.09 as ECB signals on a June rate cut continue to get clearer. AUDUSD drifted back below 0.66 this week, and trades are near 0.6560, with risks ahead from a dovish tilt from RBA and another set of weak China data due tomorrow.
Fixed income: Treasuries sold off last week, with inflation concerns returning on the radar ahead of Fed and BOJ announcements due this week. 10-year notes saw their worst week this year as Fed rate cut bets were dialed back. Both 2-year and 10-year Treasury yields rose over 20bps last week. The Fed’s 2024 dot plot and a 20-year auction on Tuesday will be a key focus this week.
Macro: Japan’s largest federation of labor unions, Rengo, secured wage increases of 5.28% for the coming fiscal year, a figure that far outpaces the initial 3.8% tally from a year ago — itself the biggest in 30 years. It added that base pay deals averaged 3.7% in the first tally of results, compared with 2.33% a year earlier. While wage hikes may be key for the Bank of Japan meeting this week, where signals have been pointing towards a rate hike, traders have much to consider this week, including a potential hawkish update from the Fed.
