Once again, the markets concentrated on bonds, with yields climbing for yet another week. The delicate situation in the Hormuz Strait keeps oil prices elevated for now.
The US Dollar strengthened further, supported by robust US economic data and rising US Treasury yields. Last week, the DXY index increased by 1% to close at 101.340.
The Euro and the Pound remain closely linked as both Eurozone and UK economic data present mixed signals.
Commodity currencies fell for a third straight week as the US Dollar appreciated against all major currencies. Last week, the AUD, NZD, NOK, and CAD each fell by about 1% against the greenback, though they may be nearing technical support levels. Elsewhere in FX, the JPY fell 0.3%, the CHF dropped 0.8%, and the MXN was the week’s worst performer, down 2.6%.
Oil had a rare negative week, as the Trump-Xi meeting sparked hope for a resolution in Iran. Last week, WTI fell approximately 4% to close at $95.79.
Precious metals couldn’t sustain their decent performance and declined as the Dollar rose. Last week, gold fell 2% to $4,285, and silver dropped nearly 3% to close at $64.30.
After a brief pause, bonds continued their rapid decline. The 10-year UST yield rose by 17 basis points to close at 5.17%, now firmly in a significant resistance zone. If it breaks 5.30%, a swift move towards 6% is possible. The 10-year Bund performed better, dropping only 0.6% to close at 119.803.
Equities continue to perform remarkably well given the general situation with the Dollar and yields. Logic suggests that major equity indices should be much lower, yet they remain resilient. Last week, the S&P 500 index rallied 1.1% to close at 7745, and the DAX gained 0.4% to close at 25408 points.
Finally, cryptocurrencies remain one of the top-performing assets in recent weeks. At the time of writing, Bitcoin and Ethereum are both up approximately 4%, at $84,000 and $2,690, respectively.
The Week Ahead:
As the US midterms approach, the main question is whether President Trump will make a deal with Iran to ease market stress. Rising yields pose a significant challenge for the US Treasury.
In terms of data, we have more PMI releases, the RBA is expected to hike rates by 25 basis points, and the week concludes with US nonfarm payrolls.
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