Amidst choppy market conditions, Wall Street indexes concluded a tumultuous week on a high note. Despite facing turbulent waters, the Nasdaq managed to achieve a gain of over 4%, embarking on a bumpy journey to reach its current position.
The VIX displayed a slight increase of around 2% over the week, yet it remains up by 25% from its position a month ago.
The financial market’s performance was largely dominated by banking concerns, with Silicon Valley Bank setting the tone at the beginning of the week, followed by Signature Bank, Credit Suisse, and the First Republic Bank.
It is anticipated that financial market turbulences will continue to take center stage in the coming days, with investors closely monitoring the upcoming events of the Swiss National Bank, Federal Reserve, Bank of England, and the PMIs.
The U.S Market Remains Resilient
Although European and Asian indices experienced weekly losses, the U.S. market showed resilience amidst the rough waters, with traders braving the choppy conditions to emerge victorious.
The financial markets will undoubtedly face more obstacles in the future, but with resilience and strategic navigation, traders can continue to navigate these rough waters with confidence.
Looking ahead to next Wednesday, it is highly likely that the Federal Reserve will raise interest rates by 25 basis points, despite the ongoing market tensions.
Although some may be apprehensive about the potential consequences of such a move, it is important to note that if the Fed were to remain cautious and avoid a rate hike, it could trigger a shock in the markets.
This could potentially offset any positive news regarding a pause in the tightening cycle. Therefore, the clues about the future that the Fed provides will be watched closely by investors worldwide.
The Current State of the Asian Financial Market
Meanwhile, China is expected to leave interest rates unchanged on Monday. In response to rising odds of interest rate cuts before year-end, investors have been flocking to safe-haven assets such as US Treasuries, resulting in massive weekly gains.
As a result, yields across the globe have collapsed, and the Japanese Yen has emerged as the primary beneficiary among currencies in this context, causing USD/JPY to lose almost 300 pips.
Over the past week, the US Dollar Index saw its lowest weekly close in five weeks, despite the deteriorating market sentiment.
While the Greenback did not receive a significant boost from the systemic risk fears present in the market, if these concerns begin to dominate price action, the DXY could make a strong comeback.
On the other hand, the European Central Bank increased interest rates by fifty basis points while dropping forward guidance.
However, the ongoing banking crisis and French President Emmanuel Macron’s upcoming non-confidence vote weighed heavily on the Euro. As a result, EUR/GBP posted its lowest close since mid-January.
The recent banking crisis, which included Credit Suisse, had a significant impact on the Swiss franc, leading the Swiss National Bank to take action.
The SNB is expected to announce its monetary policy decision on Thursday, and while February’s inflation in Switzerland was higher than expected, the current turmoil may keep the SNB from another hike.
Gold and Bitcoin Major Winners
Gold emerged as a major winner this week, with its value increasing by more than a hundred dollars and approaching the $2,000 mark. This surge in gold prices is likely due to risk aversion among investors and the reversal in bond yields.
In addition, Bitcoin also continues to rise, with its value increasing by more than 20% during the week and returning above $26,500.
It was a turbulent week for emerging market currencies, with USD/MXN jumping for the second week in a row. Although the pair erased a 10% YTD loss, it failed to hold above 19.00, highlighting the ongoing volatility in the market.
As the market continues to shift and fluctuate, investors and traders should remain vigilant and stay informed about the latest market developments to make informed decisions.