US and European futures are trading marginally lower to kickstart the week as traders are largely hesitant to place any bigger bets ahead of two important economic events taking place this week. Firstly, we are going to see a fresh reading of the US CPI which is likely to set the trading tone between investors and traders. Secondly, the Fed will announce its monetary policy decision this week. This will be the key event for this week. So far, the expectations are more on the optimistic side when it comes to the US inflation data and the Fed meeting. If anything changes from this, the US stock market is likely to experience a complete meltdown.
The US CPI reading in the previous month experienced a significant drop, and this was mostly due to the Fed increasing the interest rate to slow down economic activity. Throughout this year, we have seen the Fed taking serious aggressive monetary policy measures to control inflation. However, the last US CPI reading changed things a lot and made the Fed believe that inflation has started to move in the right direction. T his means that they need to do less to control inflation as there is plenty more tailwind behind this which will continue to push inflation lower.
However, one odd factor that is keeping traders on edge is the fact that the US labor market is pretty robust. This has made many think that the Fed may not be that dovish as a stronger labor market gives them a better incentive to continue with the current pace of their monetary policy and that they can achieve their interest rate target much sooner than previously anticipated. The US Treasury Secretary has also said in her recent speech that inflation is primed to experience significant reduction by the end of this year, but she has raised concerns that recession risk remains high and the US economy could experience turbulence in the coming period.
Nonetheless, this will be the last meeting for the Fed for this year, and the reading is most likely to bring plenty of fireworks for the market players and more volatility for traders.
As for the last week, the Dow fell 2.77%, suffering its worst stretch since September. The S&P 500 fell 3.37%, also suffering its lowest low since September. The Nasdaq composite fell 3.99%, suffering its worst weekly stretch in a month. The Russell 2000 fell 5.08%, marking the worst week since September for small caps. All 11 sectors were negative for the week, leading to the energy’s downside .
Oil prices have started the week with a lot of volatility. There are two factors that underpin the price of Crude and Brent oil. Firstly, Russia that has threatened to punish the West for its price cap act. Putin said on Friday that Russia could reduce its oil production significantly, and that it will refuse to sell oil to any of the countries that are going to follow the rules set by the US and EU regarding the Russian oil cap. The Saudi narrative on this matter is going to be highly important. Going forward, traders are going to keep a close eye on it. The Saudis will be setting the narrative .
Precious metal prices are experiencing a challenging price action as the dollar index is controlling the narrative. As mentioned earlier, it will be the US CPI reading and the Fed meeting that is going to control the price action. For now, it is the support of 1,800, which changes into resistance regarding price action, which matters the most.