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Market sentiment notably improved this past week. On Wall Street, Nasdaq 100, S&P 500 and Dow Jones futures soared about 8.4%, 5.7% and 4.02%, respectively. This was some of the best performances in months. Risk appetite also improved around the world. The Dax 40, Nikkei 225 and Hang Seng soared 5.68%, 3.91% and 7.21%, respectively.
The key driver of sentiment last week was October’s US inflation report, where both the headline and core rate of CPI unexpectedly softened. Traders quickly pared back 2023 Fed rate hike bets as odds of a 75-basis point rate increase in December virtually disappeared overnight. The US Dollar tumbled as gold prices soared.
From a financial markets’ standpoint, this data overshadowed US mid-term elections, where expectations of a Republican ‘red wave’ faltered. Cryptocurrencies were in the hot seat last week amid FTX filing for bankruptcy after Binance walked away from a possible acquisition. Despite the surge in stocks, Bitcoin was down about 20 percent last week.
As far as economic event risk goes next week, the US will see more Fedspeak, PPI and retail sales data. Unexpectedly strong showings here may to a certain extent risk reversing some of the market moves to the CPI print last week. For the British Pound and Canadian Dollar, the UK and Canada will release inflation data.
Meanwhile, the group of G-20 nations will be meeting in Bali, Indonesia during the middle of the week. Tensions are high amid the war in Ukraine and ongoing high levels of inflation. Earnings season is also in play, with major retailers in focus such as Walmart and Home Depot. What else is in store for financial markets in the week ahead?
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