It was another volatile week, with equity markets finally displaying high volatility and breaking the recent slow “melt-up” trend. Markets sold off strongly last week, with the VIX closing above 16 for the first time in around three months, and the tech sector in particular looking vulnerable (the Nasdaq closed more than 5% lower from its peak last week).

The US Dollar usually performs well in a risk-off scenario, and it did indeed rally last week, but it still seems to be underperforming. Dollar bulls should be careful as this could be a temporary correction higher before a continuation lower. Last week, the DXY rose 0.3% to close at 104.365.

The Pound and the Euro lost some ground against the greenback but did well against the other majors. Inflation prints came in at 2% for the UK (at the BoE’s target and marginally higher than expected) and 2.5% for the Eurozone, as expected. The ECB left rates unchanged last week but has kept the door open for more cuts this year, especially if economic data weakens.

Commodity currencies had already shown weakness from the previous week and traded poorly again. The CAD performed best with a 0.7% drop, while the AUD, NZD and NOK dropped around 1.5% against the Dollar. Elsewhere in FX, the JPY strengthened 0.3% after the decisive BoJ intervention the previous week. The CHF gained 0.6%

Oil had a very bad week as risk assets sold off – the WTI fell 4.3% to close at $78.58. It remains in the middle of the very broad trading range of the past year, and it’s currently sitting on the 200DMA.

It was a tale of two halves for precious metals. Gold reigned supreme with a very composed performance in the middle of the elevated market volatility. It did retreat from its ATH peak, but it produced an almost flat week in the end, closing above $2,400. On the other hand, Silver got pummelled as the big market players continued to try and force a technical bear move. There is no reason for the massive underperformance against Gold so that these organised hammerings could yield excellent buying opportunities. Last week, silver fell over 5%, closing at $29.22.

Bonds usually perform well during risk-off moves but were strangely absent last week. The 10y UST yield rose 5bps to close at 4.24%, and the 10y Bund rallied 0.2% to close at 132.041.

Equities finally had a negative week, with lots of profit-taking and tech stocks getting crushed. This is, of course, very normal, given the prolonged grind. The “Trump Trade” suggests higher levels still, so bears should be careful as positioning gets shorter; the path of least resistance could be for higher levels. Last week, the S&P500 index fell 2% to close at 5512, and the DAX shed 3.1% to close at 18172 points.

Finally, crypto-currencies have become the flight-to-safety instruments of choice, as they performed magnificently in the face of a general sell-off. At the time of writing, Bitcoin and Ethereum are up around 10%, at $66,800 and $3,500 respectively.

The Week Ahead:

It will be all about equities next week and whether they can find some support. A second poor week in a row could break some important technical levels and make this the beginning of a broader move lower. Data-wise, we have Manufacturing and Services PMIs from around the globe, the BoC rate decision (expected to leave rates unchanged), and we close the week with the all-important US Core PCE reading.

Market Commentary: This communication is for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. All market prices, data, and other information are not warranted as complete or accurate and are subject to change without notice. Any comments or statements made herein do not necessarily reflect those of Coeus Capital. Coeus Capital does not assume any liability whatsoever for the content of this newsletter or make any representations or warranties as to the accuracy and completeness of any information contained in this newsletter.