Dow Jones, Nasdaq 100, Gold, US Dollar, Crude Oil, Fed, Powell

Global market volatility was on edge this past week as financial-related stocks disproportionately suffered. On Wall Street, the Dow Jones fell -0.15%, but the tech-heavy Nasdaq soared 4.41%. Across the Atlantic, the DAX 40 and FTSE 100 sank -4.28% and -5.33%, respectively. This is as Japan’s Nikkei 225 fell -2.88% while Hong Kong’s Hang Seng Index rose 1%.

Regional banks were feeling the pinch of Silicon Valley Bank’s collapse earlier this month. Despite receiving a financial lifeline from larger banks, Frist Republic Bank shares collapsed over 70% over the past 5 trading sessions. Troubles at Credit Suisse further compounded bank sector woes as a few major banks were reported curbing trading with the lender or are considering it.

As a result, traders were quick and aggressive at the pricing in rate cuts from the Federal Reserve. Compared to March 10th, markets priced in a full 100 basis points in cuts looking 6 months out. That would leave the Federal Funds Rate around 4.25% after anticipating hikes to 5.25% beforehand. The 2-year Treasury yield tumbled.

In response, the US Dollar turned lower as markets focused on a dovish Fed. Anti-fiat gold soared and is up about 8.9% this month. We have not seen this kind of performance since July 2020 during the Covid pandemic as central banks rushed to cut rates around the world. Meanwhile, the price of WTI crude oil collapsed 13.55% last week, the most since February 2020.

Ahead, all eyes will be planted on the Federal Reserve on Wednesday. All bets of a 50-basis point hike have vanished, with there being rising expectations of an end to the tightening cycle. But, slightly over 50% of expectations favor a 25bps increase. Either way, this is opening the door to a surprise either way if the odds get closer to 50-50. The Bank of England will also be setting rates. What else is in store for markets in the week ahead?

How Markets Performed – Week of 3/13

Fundamental Forecasts:

Euro (EUR) Weekly Forecast: Hawkish ECB Hikes Rates, Bank Stocks Highlight Risk

The ECB hiked interest rates by 50bps on Thursday, and said they will do more to fight inflation. The Euro grabbed a small bid but Euro Area bank stocks fell further.

GBP Forecast: UK CPI and BoE Rate Decision Complicated by Banking Rout

BoE officials have the unenviable task of hiking into the current banking sector turmoil. UK Inflation data on Wednesday alongside the FOMC meeting and projections.

US Dollar Outlook Hinges on Fed’s Next Steps. Will the FOMC Hike or Pause?

The US dollar’s trading bias will be defined by the Fed’s policy outlook next week. Traders should prepare for the possibility of a dovish guidance due to rising financial instability risks.

Technical Forecasts:

Nasdaq 100, Dow Jones, S&P 500 Technical Forecast: Mixed Week Offers Neutral View

There was a disproportionate rise in tech stocks last week as the Nasdaq 100 roared higher but the Dow Jones was left behind. Broadly speaking, the US equities technical outlook is neutral.

— Article Body Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

— Individual Articles Composed by DailyFX Team Members

To contact Daniel, follow him on Twitter:@ddubrovskyFX