Markets were again very buoyant, with several central bank interest rate decisions. Interest rates were left unchanged by the FOMC, BoE and BoJ, but the main story of the week was the rally in bonds. Inflation continues to fall globally (albeit at a relatively slow pace), but the global economic situation is deteriorating by the week.

The US dollar index had a bad week as most US economic data (including NFP) failed to meet expectations and UST yields fell. The DXY index fell 1.4% last week, closing at 105,069.

The euro was also hit by worse-than-expected economic data, with EZ CPI coming in at 2.9% YoY, compared to expectations of 3.1%. With inflation falling towards the 2% target, likely, the ECB is now done with this rate hike cycle.

Sterling had an average week, with the BoE leaving interest rates unchanged but predicting a tough period for the UK.

Commodity currencies did very well as risk-on sentiment prevailed. Last week, the AUD and NZD rose about 3%, while the CAD gained about 1.5% against the dollar. Elsewhere in FX, JPY and CHF posted marginal gains.

Oil had a poor week, with WTI closing 5% lower at $80.83.

Precious metals should have performed much better, given the fall in interest rates and the dollar and general risk-on sentiment. Gold ended the week 0.7% lower at $1,992 and silver closed 0.5% higher at $23.20.

Equities were certainly very happy with the miss of the NFP and the bond rally. The S&P500 index rose 6% to 4,358 points and the DAX gained almost 4% to close at 15,193 points.

Bonds had a monster week and could have set an important medium-term low. Positioning was very short (especially CTAs) and this may take some time to unwind. Last week, the 10y UST yield fell 29bps to 4.56% and the 10y Bund rose 1.2% to 130,408 points.

Finally, cryptocurrencies crept higher as their correlation with risk returned. At the time of writing, Bitcoin and Ethereum are both up more than 2% to $34,800 and $1,830 respectively.

The week ahead:

It will be a crucial week, as markets must decide whether last week’s move continues. Is this strength in the stock market a bear market rally, or have we seen a significant low? Everything will revolve around economic data and whether central banks are done tightening.

In terms of data, we have interest rate decisions from the RBA and a series of PMIs from around the world.

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