Three Markets to Watch
The past week delivered a significant volume of market activity. We observed the first serious correction in the price of gold in some time, a dynamic rebound in oil prices following US sanctions on Russian oil companies, as well as the delayed release of US inflation data, and the first set of mixed quarterly results from Wall Street’s technology giants.
The coming days, however, promise even greater intensity. Key events include monetary policy decisions from two major central banks—the Federal Reserve and the Bank of Japan, a potential meeting between Presidents Trump and Xi, not to mention the latest financial reports from the remaining Magnificent 7 stocks. Consequently, the primary focus for analysts will be the USD/JPY pair, the US100 index, and the GOLD market.
USD/JPY
The selection of the pro-stimulus Sanae Takaichi as Japan’s Prime Minister led to a marked weakening of the yen. Amid plans to increase government spending and issue additional debt in Japan, the USD/JPY pair is vulnerable to further appreciation, potentially reaching levels not seen since the beginning of the year.
This week is crucial due to the dual central bank decisions. On Wednesday evening, the Federal Reserve’s stance will be announced; while widely expected to cut interest rates, the Fed might maintain a slightly hawkish tone. Conversely, the Bank of Japan, despite inflation nearing 3% is highly likely to keep rates unchanged for yet another meeting.
A maintenance of the status quo by the BoJ would favor a continuation of the upward trend in USD/JPY. However, any signal of openness to a rate hike in December could trigger a sharp reversal and a significant decline in the pair. The BoJ decision is due during the Asian trading session on Thursday.
US100
Wednesday is poised to be a pivotal day for equity indices. In addition to the Fed decision, investors will be intently focused on the earnings reports of numerous American technology behemoths. Post-market on Wall Street, we will receive reports from Microsoft, Alphabet, and Meta. Earlier in the week, results from Caterpillar, Boeing, and Verizon, among others, will be released.
On Thursday, after the close, the market will review results from Apple and Amazon, while pre-market trading will analyze reports from Eli Lilly and Mastercard. Evidently, the immediate future holds decisive importance for sustaining equity indices near historical highs.
Furthermore, Thursday is slated for a potential meeting between Presidents Trump and Xi at the APEC conference in South Korea. The second half of the week holds the potential to generate immense volatility across key markets. Following the mixed reactions to the Netflix and Tesla results, the market is pricing in positive surprises from the remaining tech giants.
GOLD
After four months of consolidation, the price of gold began a very strong upward trend in August. The main catalyst was the perceived “pivot” by the Federal Reserve. The US central bank began cutting interest rates in September, and despite incomplete data due to the government shutdown, it is widely expected to continue the cycle with another cut in October.
The pivotal question, however, concerns December and the outlook for further cuts next year. A slightly more hawkish undertone in the Fed’s communication on Wednesday could push gold to even lower levels.
Nevertheless, the potential Trump-Xi meeting on Thursday must also be considered. A positive and constructive dialogue could reduce global risk aversion, potentially driving the price of gold below $4,000. Conversely, should the US opt to impose export restrictions on China (e.g., concerning American software), this could trigger another wave of appreciation for gold, targeting new historical highs.
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