Last week, we said that if the interest rate breakout was confirmed, risk assets would move lower. This is precisely what happened, despite the slight disappointment in US data during the latter stages of the week.

The US dollar continued its relentless upward trend and has now completed 11 positive weeks in a row. Currently, the US economy seems to be the “least dirty shirt” compared to the other majors, and so the greenback gets a continued lift. Last week, the DXY index rose 0.6% and closed at 106.174.

The euro was hit by weak eurozone data, especially inflation. The situation has clearly deteriorated recently, which is reflected in the euro’s lower exchange rate.

The Pound is still vulnerable due to the deteriorating economic climate in the UK and it remains in a downtrend. Last week, Sterling lost ground against most major currencies, with Cable closing at 1.22.

Commodity currencies should have performed worse last week, given the broad strength of the dollar and yields. However, they more or less managed to hold firm, which should be seen as a small victory. The AUD and NOK remained broadly flat, the NZD rose 0.6% and the CAD fell by about the same amount. Elsewhere in FX, JPY, CHF and MXN also fell against the dollar.

Oil continues to bid very well and maintains its impressive gains of the past 3 months. Last week, WTI rose 0.5% and closed at $90.71.

Precious metals reacted very well after the US inflation data, but Friday was a day to forget for bulls. After falling in the closing stages of the week, metals were viciously beaten lower with no clear catalyst. Silver, in particular, was 4% higher at one point, but ended the day at almost -2%. Retail traders are reportedly extremely long on silver and this positioning needs to reverse before a move higher can resume. Last week, gold fell 3.9% to $1,849 and silver fell 5.8% to $22.19.

Equities are still relatively resilient given USD strength and yields. However, fundamentals dictate that tighter monetary conditions are a headwind for equities and we often see evidence of this. Last week, the S&P500 index fell 0.7% to 4288 points and the DAX fell 1.3% to 15350 points.

Bonds confirmed the decline and interest rates continued to rise. However, this move is now very stretched and it is not as obvious that interest rates will “stay higher for longer” as many market analysts predict. Last week, the 10-y UST yield rose 13bps to 4.57% and the 10-y Bund fell 1% to 128.358 points.

Finally, cryptocurrencies are trading pretty well, given the lower share prices. At the time of writing, Bitcoin is 1.5% higher at $26,900 and Ethereum is over 4% higher at $1,670.

The week ahead:

Yields should be in the spotlight again, as they may be the biggest driver for equities and the dollar. In terms of data, it is a busy week, with several PMIs, ADP and Nonfarm Payrolls.

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