Asian shares were mixed this morning with the Hang Seng painted red as investors kept a close eye on China following a crackdown on its technology and education industry. European stocks have opened firmly in the red, mirroring the caution from Asia while US futures are lower despite all three major indices on Wall Street closing at fresh record highs.
It’s a big day for big tech as heavyweights such as Apple, Microsoft and Alphabet will report their latest quarterly earnings. If these titans report much better-than-expected quarterly results and revenues, this could further empower US equity bulls. In the meantime, a sense of caution is likely to linger across markets as investors adopt a guarded approach due to the Asian volatility and Federal Reserve policy meeting on Wednesday.
Big week for the dollar
Watch this space as the next few days could be volatile for the dollar.
Investors will be presented with an array of economic reports this week ranging from the US consumer confidence and second quarter GDP to core PCE inflation among other important releases.
On top of this, the Federal Reserve policy meeting will be closely scrutinised for more clues on the central bank’s next move. It was only last month that the Fed rattled markets with their hawkish “dot plot” surprise. Interestingly since then, Federal Reserve Chairman Jerome Powell has remained persistently dovish and stuck to his view that the recent spike in inflation is “transitory”. All eyes will be on his press conference on Wednesday and whether he sticks to the script or changes the tune.
If he reiterates the Fed’s ongoing mantra that price increases are temporary, this could weaken the dollar. However, with the US economy recovering and annual inflation hitting a 13-year high, the Fed may find it increasingly difficult to defend its dovish monetary stance.
Given how the dollar continues to display high levels of sensitivity to inflation expectations, real yields and US economic data, fasten your seatbelts and brace yourself for a potentially wild ride.
Commodity spotlight – Gold
Gold prices wobbled above $1792 this morning as investors awaited the Federal Reserve meeting on Wednesday.
While bugs may draw strength from the shaky risk sentiment following crackdowns in China, the precious metal is likely to remain confined within a range until the Fed meeting. A hawkish central bank could deliver a heavy blow to zero-yielding gold. However, a meeting filled with doves may boost the precious metal’s allure, possibly sending prices higher.
Speaking technicals, gold remains under pressure on the daily charts. Sustained weakness below the psychological $1800 level may drag prices lower towards $1760. If bulls can secure control back above $1800, gold has the potential to retest $1825 which is just below the 200-day Simple Moving Average.
