As a major central bank policy meeting looms over the market, let's look at expectations. The Bank of Japan is expected to maintain low interest rates. BOJ Governor Kazuo Ueda hinted at ending negative rates sooner, possibly by year-end or early next year. The federal reserve, on the other hand, is facing an autoworker strike, a potential government shutdown, and resuming student loan payments, which presents a new challenge to achieving a soft landing. The Bank of England is expected to raise interest rates by 0.25% this week, but there is a chance they could pause due to signs of slowing wage growth and inflation.
The major US stock indexes ended mixed on Monday as investors awaited the major central bank meeting this week, with the Dow eking out a small gain while the S&P 500 and Nasdaq closed flat. Energy companies kept cruising higher thanks to oil's rise past $95 a barrel, but Tesla slammed on the brakes and dragged consumer stocks lower. Social media was in an uproar as Treasury yields were suspected of glitching, which saw a 2-year yield jump of 8.5% to a 23-year high but recovered promptly.
Gold prices rose to two-week highs as the dollar weakened ahead of major central bank meetings this week, though the metal faces headwinds from expectations of further Fed rate hikes and declining ETF holdings. Key factors to watch include the Fed's tone on future policy amid resilient inflation and economic data, possible safe-haven demand if US shutdown concerns escalate, and physical gold demand from major consumers like China.
Oil prices have rallied significantly this year due to extended OPEC+ supply cuts and declining US shale output, with Brent and WTI touching 10-month highs, but analysts caution prices are overbought and could see a correction by year-end. Major forecast risks include deeper OPEC+ cuts if markets tighten further, slower non-OPEC supply growth, and a stronger-than-expected oil demand recovery in China and Europe.
The US dollar remains near a 6-month high against major currencies as traders await interest rate decisions by major central banks. Speculators have reduced their bearish dollar bets for the sixth week in seven amid resilient US growth, bringing them close to flipping to a net-long position. The euro and yen have weakened substantially versus the dollar, but investor positioning is stretched, and some consolidation may be on the horizon.