The Dollar Index Rises Ahead Of This Week's Fed Meeting, And Due To Tensions Over Russia And Ukraine

Major US stock indices fell sharply on Friday. The S&P 500 (US500) and Nasdaq (US100) indices have shown their biggest weekly percentage declines since the pandemic began. At the close of the stock market, the Dow Jones index (US30) decreased by 1.30% (-4.81% for the week), the S&P 500 (US500) fell by 1.89% (-5.18% for the week), and the Nasdaq technology index (US100) lost 2.72%, becoming the biggest weekly decline (-6.38%) among American indices.

Since early 2022, the shares of technology companies have been strongly affected by the rapid growth of the treasury bond yields against the background of expectations that the Fed will actively increase interest rates to combat high inflation. Markets are already pricing in about four rate hikes this year. Goldman Sachs Group Inc. economists said they saw the risk that the Federal Reserve would tighten monetary policy at every meeting since March, and Jerome Powell will announce it at Wednesday's Federal Reserve meeting. Investors will also focus on what the Fed will say about its nearly $9 trillion balance sheet. Any indication that the balance sheet may be cut faster than planned could prolong the sell-off in Treasuries and tech stocks.

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Some economists worry that a rise in jobless claims along with a sharp drop in retail sales in December could be a sign that the economy is losing momentum, but that's unlikely to stop the Fed from raising rates in March.

Technology giants Microsoft, Apple, and Tesla, will report this week. According to FactSet, Microsoft, which will report on Tuesday, is expected to report quarterly earnings of more than $50 billion for the first time. Tesla and Apple report on Wednesday and Thursday, respectively, and are expected to report record profits.

Other major companies will also report this week, including 3M, General Electric, IBM, Intel, Caterpillar, American Express, Boeing, Mastercard, Visa, McDonald's, Johnson&Johnson, and Colgate-Palmolive.

On Sunday, the US State Department announced that the families of embassy employees in Kyiv must leave Ukraine. The US President Joe Biden is considering increasing the US military presence in Eastern Europe to counter the Russian troop buildup. The State Department order is one clear sign that the United States is preparing for aggressive Russian action in the region.

On Friday, European stock indices closed with a decline, as rising inflation in the region, expectations of a rate hike by the Federal Reserve, and disappointing statistics from the United States weighed on investor sentiment. German DAX (DE30) fell by 1.94% (-2.16% for the week), French CAC 40 (FR40) decreased by 1.75% (-1.37% for the week), Spanish IBEX 35 (ES35) lost 1.36% (-1.69% for the week), British FTSE 100 (UK100) decreased by 1.20% on Friday (-0.65% for the week). The Eurozone will release PMI data today, which will show how economic activity developed in December when the Omicron strain dominated the region. On Monday, the UK will also release PMI data. While activity in the service sector slowed sharply in December amid a spike in Omicron, other data indicate that the economic activity began to recover. But analysts expect business activity to show a decline. For now, the Bank of England is on the way to another rate hike in February. The European home price index jumped by 2.1% in December. The index increased by 15.6% in 2021.

Oil prices increased last week, but the growth was not so confident. The US crude inventories rose last week for the first time in eight weeks, increasing by 515,000 barrels after declining by 4.55 million in previous weeks. Over the past three weeks, crude inventories have fallen by about 6 million barrels, which only partially explains the current gasoline balance in the market. Analysts at SK Charting believe oil prices could fall to $82 in the coming week. Tonight there were about four loud explosions in Abu Dhabi, followed by the sound of sirens and air closures. Presumably, the fire was carried out by Hussites from Yemen from rocket launchers previously transferred to them by Iran.

Amid a massive sell-off in the US stock market, prices for gold, silver, palladium, and platinum significantly increased at the end of the week, as investors partially hedged their positions through the precious metals. Gold prices rose as government bond yields declined at the end of last week. But analysts believe that hedging portfolios through gold are not a good idea as the US Federal Reserve will begin a series of interest rate hikes this year. A rate hike is usually favorable for the dollar and negative for gold.

Asian markets primarily traded in negative territory on Friday. The market dynamics followed the US stock indices. Japan's Nikkei 225 (JP225) decreased by 0.90% (-2.86% for the week), Australia's S&P/ASX 200 (AU200) lost 2.27% (-2.95% for the week), but Hong Kong's Hang Seng (HK50) was resilient, rising 0.05% on Friday and added 2.36% for the week. US-listed Chinese stocks are outperforming the NASDAQ index for the fourth last week. Japanese automaker Toyota stops production at 11 plants in Japan because of COVID.

At the commodities market, futures on palladium (+11.73%), platinum (+6.87%), silver (+6.23%), wheat (+4.99%), orange juice (+4.87%), corn (+3.65%), soybeans (+3.37%), and sugar (+3.17%) showed the biggest gains by the end of the week. Futures on lumber (-12.61%), natural gas (-7.09%) and cocoa (-2.56%) showed the biggest drop.

Main market quotes:

• S&P 500 (F) (US500) 4,397.94 −84.79 (−1.89%)
• Dow Jones (US30) 34,265.37 −450.02 (−1.30%)
• DAX (DE40) 15,603.88 −308.45 (−1.94%)
• FTSE 100 (UK100) 7,494.13 −90.88 (−1.20%)
• USD Index 95.64 −0.10 (−0.10%)

Important events for today:

• Australia Manufacturing PMI (m/m) at 00:00 (GMT+2);
• Australia Services PMI (m/m) at 00:00 (GMT+2);
• Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
• Japan Services PMI (m/m) at 02:30 (GMT+2);
• Germany Manufacturing PMI (m/m) at 10:30 (GMT+2);
• Germany Services PMI (m/m) at 10:30 (GMT+2);
• Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+2);
• Eurozone Services PMI (m/m) at 11:00 (GMT+2);
• UK Manufacturing PMI (m/m) at 11:30 (GMT+2);
• UK Services PMI (m/m) at 11:30 (GMT+2);
• US Manufacturing PMI (m/m) at 16:45 (GMT+2);
• US Services PMI (m/m) at 16:45 (GMT+2).