Quiet Start For Markets As Traders Brace For Central Bank Fireworks

Markets are kicking off a big week of central bank action on a tentative footing. Friday’s US PPI data came in above expectations which, on the back of upside strength in recent labour
data, is keeping the prospect of prolonged Fed tightening alive. There are hawkish expectations for the ECB and BOE too meaning that this could prove to be a volatile week across the board for FX, equities and commodities alike. USD is seeing a muted start to the week with price treading water at the open on Monday. Action is likely to remain fairly constrained ahead of Wednesday’s big event.

Key Factors for Today

- USD starts week in muted fashion as traders await Fed – PPI came in above forecasts on Friday
- Mixed action in equities – bias mostly lower ahead of central bank meetings
- GBP leading in FX – Propped up by better GDP
- Metals hold near highs – oil prices continue under pressure this week

Coming Up

- CAD – BOC’s Macklem speaks
- USD – Federal Budget balance
- AUD – Westpac Consumer Sentiment

Equities Mixed, Vulnerable to Losses

Equities markets are seeing mixed action across the European open on Monday though the bias appears to be tilted to the downside as focus turns to the upcoming central bank meetings. Friday’s data poses a threat to the peak-inflation narrative in the US. However, it is worth noting that while above forecasts, PPI is still down from the prior month. Still, with further tightening expected from each of the three central banks meeting this week, equities look vulnerable to downside shocks particularly on any hawkish surprises.

GBP Leading in FX Following Better GDP Print

In FX, we’re seeing a quiet start on Monday as nerves ahead of Wednesday’s FOMC look to be constraining action across the board. However, GBP has been the best performer so far. Over the weekend, there was plenty of media coverage in the UK priming people for a an aggressive hike from the BOE this week. Today’s UK GDP came in a little better than expected which helped lift sentiment somewhat. However, the outlook from the BOE on Thursday is likely to be a reaffirmation of the rather gloomy guidance given last time around.

Metals Hold Near Highs, Crude Turns Lower Again

In the metals and commodities space, both gold and silver are holding near last week’s highs following further rallies seen amidst USD weakness. Given the hawkish risks for the Fed this week, any dovish surprises will no doubt see both metals break further higher. Crude oil is back under offer this week with crude futures trading lower through the European open on Monday. Price have been heavily sold for over a week now as global recessionary fears continue to ebb away at the demand outlook.