The 3 major US stock indices — the Nasdaq, Dow Jones Industrial Average, and S&P 500 — traded in the red, with the latter two undergoing their worst week since late September.
Forex
The EUR/USD pair has been trending lower for most of this year. However, hints of lowering inflation in the US have resulted in markets pricing in a weaker dollar in the belief that the US Federal Reserve’s funds rate would not need to rise as high, or remain as high, as previously predicted.
A weaker dollar and falling US treasury rates have been driving the EUR/USD rally.
As a consequence, the developments in the US this week will be focused on the interest rate decision by the Federal Open Market Committee (FOMC). The Consumer Price Index (CPI) print for November — which will follow the colder October report — and the European Central Bank (ECB) monetary policy decisions will also be significant for the EUR/USD pair.
The GBP/USD pair ended the week roughly unchanged. The pound sterling’s recent gains were capped by a pause in the decline of the US dollar.
The release of the United Kingdom’s monthly Gross Domestic Product (GDP) data will start off this week. It will be followed by the Bank of England’s (BoE) monetary policy announcement on Thursday, 15 December. A 50 basis point rate hike is already baked in, so all eyes will be on the BoE’s rate hike forecast for 2023.
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Commodities
A bearish trend started the week for gold and it lost more than 1.5% on Monday, 5 December, before regaining momentum. Although the price of gold rebounded toward $1,800 in the second half of the week, it ended up close to its price at the start of the week.
On Tuesday, 13 December, the US Bureau of Labor Statistics (BLS) will issue November inflation figures. The Consumer Price Index (CPI) is expected to be at 7.3% on an annual basis, down from 7.7% in October.
The FOMC interest rate decision will be another important factor to consider this week. Especially after FOMC Chairman Jerome Powell suggested in a recent public appearance that it would be wise to slow interest rate rises. A 50 basis point increase should not be surprising. However, a 75 bps Fed rate hike, which seems unlikely at this point, will put significant pressure on gold prices and will likely lead to rapid declines.
Oil prices underwent their worst weekly decline since early August. The downturn was attributed to weak economic data from China, Europe, and the United States. As a result of an increase in Covid-19 infections, economists expect China’s economic growth to slow down despite some restrictions being eased. The rise in Covid cases may further impact oil prices.
Cryptocurrencies
The cryptocurrencies market showed little signs of recovery this week, with most digital tokens trading sideways. The global crypto market stood at USD 840 billion as of Sunday, December 11, 2022.
Last week, Bitcoin — the world’s largest cryptocurrency — was able to clear the $17,000 resistance zone. At the time of writing, Bitcoin was trading at $17,805.20. Ethereum, the digital currency with the second-highest market capitalisation, was trading at $1,262.92.
The Securities and Exchange Commission (SEC) released a guidance on Thursday, 8 December, instructing companies to disclose crypto asset holdings and risk exposures to market developments in their public filings. The guidance comes as a consequence of the implosion at FTX —- a leading cryptocurrency exchange platform — which affected over 100,000 customers.
Coinbase, one of the largest crypto exchanges in the world, has waived conversion fees for traders who wish to switch from Tether (USDT) to “stablecoin” USDC. Coinbase is an investor in USDC. At present, Tether is the third-most widely traded asset on Coinbase, representing 5% of the trade volume on the platform. The move to switch from USDT was made when Tether briefly lost its one-to-one peg to the USD as a result of the collapse at FTX.
In South America, the Brazilian government approved a bill to regulate digital currencies in order to protect retail investors’ interests. The move is likely to boost crypto adoption amongst the masses.
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US stock markets
| Name of the index | Friday’s close | *Net change | *Net change (%) |
| Dow Jones Industrial Avg (Wall Street 30) | 33,476 | -953.42 | -2.77 |
| Nasdaq (US Tech 100) | 11,563.33 | -430.93 | -3.59 |
| S&P 500 (US 500) | 3,934.38 | -137.32 | -3.37 |
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
The US stock market had a declining week as traders had to up their game during the challenging trading sessions. When the closing bell rang on Wall Street on Friday, the S&P 500 dropped 3.4%, the Dow Jones Industrial Average fell by 2.8%, while the tech-heavy Nasdaq fell 4%. It was the worst week since late September for the S&P 500 and the Dow Jones.
The waves of inflation seem to continually strike the stock market as the major indices brace for impact from the latest CPI data. Furthermore, the Fed’s interest rate decision will set the direction for markets for the remainder of this year and the start of 2023.
The stronger-than-expected Producer Price Index (PPI) data caused the S&P 500 to fall after two consecutive weeks of gain over fears that the Fed might keep interest rates higher for longer, which is indicative of a recession.
The coming week will impact the movement of the stock market for what remains of 2022 as Fed Chair Powell will hold his last press conference of the year on Wednesday, 14 December. He might give his take on inflation and the future of the interest rate hikes at the conference.
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