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Most global equities ended this past week on an upbeat. On Wall Street, the Dow Jones, S&P 500 and Nasdaq Composite all rallied over 1%. Equities in Europe outperformed, the DAX 30 and FTSE 100 climbed 1.48% and 1.5% respectively. The Asia-Pacific region was a mixed bag, with the Nikkei 225 down 0.28% as the ASX 200 rallied 0.98%.
The general rosy mood likely stemmed from a material shift lower in longer-term Treasury yields. The 10-year rate declined 4.73% in the worst 5-day period since early December. This is despite materially higher-than-expected US inflation and retail sales data. Ongoing dovish commentary from the Fed cooled 2022 rate hike expectations, refueling upside momentum in stock markets.
As a consequence, the haven-linked US Dollar underperformed. The DXY dollar index closed at its lowest in about a month. This is as the sentiment-linked New Zealand and Australian Dollars capitalized the most against the weaker Greenback. The Japanese Yen and Swiss Franc also continued their advance. Precious metals, like gold and silver, also outperformed.
The week ahead contains a couple of notable economic event risk, most importantly the Bank of Canada and European Central Bank interest rate announcements for USD/CAD and EUR/USD respectively. The former may begin to unwind its emergency pandemic response programs, but rising local Covid cases and Ontario’s lockdown remain a fundamental headwind.
The US will also see Markit Manufacturing PMI data for April, but it remains to be seen if better results could materially alter the outlook for the Fed for the time being. Earnings season is in full swing, with companies such as Intel and Netflix reporting. What else is in store for financial markets in the week ahead?
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