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US stock indexes turned lower last week, with losses accelerating into the weekend as the US dollar surged. Federal Reserve rate hike bets firmed up a bit after hawkish rhetoric from James Bullard and Esther George, two FOMC voters. The Dow Jones Industrial Average fell 0.86% on Friday, trimming earlier gains and ending the week negative. The high-beta Nasdaq-100 Index (NDX) broke its four-week win streak, closing 2.38% lower.
Traders will receive an inflation update for July via the US PCE price index. Analysts expect a 4.7% annual increase for core prices, the Fed’s preferred metric. That would be down from 4.8% in June. A miss may help revive Fed pivot bets, but rate traders are keen to hear what Fed Chair Jerome Powell says at the Jackson Hole Economic Symposium on August 26. Mr. Powell is scheduled to speak Friday at 14:00 GMT.
Equity traders appear ready to abandon the US stock rally. According to the CFTC’s Commitments of Traders (COT) report, released Friday, short positioning among S&P 500 speculators rose by 44k as of August 16. Equity markets in Asia also ended lower, with the S&P Asia 50 Index falling by 1.2% through the week. Chinese stocks fell amid a blistering heatwave that is forcing factories to close. China’s tech giant Tencent reported its first drop in quarterly revenue, which weighed on Chinese tech stocks. Hong Kong saw a rise in Covid cases, prompting officials to reopen an isolation site.
The China-sensitive Australian dollar fell over 3% against the US dollar. Iron ore prices in China fell nearly 4%, adding a headwind to the Aussie dollar. A disappointing Australian jobs report boosted selling, although rate markets still see a 50 basis-point increase at the Reserve Bank of Australia’s September policy meeting. Crude oil prices ended lower last week as tightening Fed bets and China’s economic woes outweighed a big draw in US oil stocks.
European natural gas prices settled at a record high. Europe’s dry conditions and heat have squeezed hydroelectricity capacity. On Friday, Russia’s state-controlled Gazprom said it would suspend its Nord Stream pipeline to Germany later this month. Europe has made progress on filling its gas storage ahead of the winter, but the upcoming pipeline shutdown puts another question mark over its energy situation. According to AGSI data, EU gas storage is nearly 76% full.
The euro and British pound fell over 2% versus the USD. Europe and the United Kingdom face high odds of recession partly due to the soaring energy prices across Europe. Elsewhere, bitcoin prices fell over 10% as risk aversion accelerated. Gold traders sold the precious metal against hawkish Fed bets. Besides Jackson Hole and US inflation data, the economic event docket is sparse, leaving prevailing risk trends at the helm.
