Market Wrap: Turbulence and terror for investors – which key levels will break next?

Markets remained under the clear direction of the US dollar and yields following last week’s hawkish FOMC meeting, which saw Wall Street and key commodity markets continue lower due to recessionary fears.

The ASX 200 fell for a second week and closed beneath 6600 for the first time since late June, as investors continued to offload Aussie stocks on Monday to push the index below 6650.

Here are the top five things to watch in markets this week:

1. Which key levels will break next?

Investors experienced turbulence, excitement and terror with increased volatility – and key levels have been broken.

The GBP/USD hit an intra-day record low during Monday’s trade and WTI crude went below $80.

The S&P 500 came close to re-testing its YTD low (3636.87) on Friday and USD/JY is rising towards 145 – a level which seemingly made Japan’s government uncomfortable.

2. Bank of Japan governor speaks

Following the government of Japan’s intervention in the currency market to strengthen the yen, it will be interesting to hear comments from the BoJ governor Kuroda and assistant governor on Tuesday at 3.35pm and 4.40pm.

But, as the BoJ’s stance on a weaker yen is at odds with the government, last week’s intervention may prove futile without a co-ordinated effort to strengthen the currency.

3. AU retail sales

Australia’s shoppers continued to defy the doom and gloom in July, as retail sales rose 16.5 per cent year on year or 1.3 per cent month on month.

On Wednesday at 11.30am we find out if consumer spending remains optimistic in the face of rising interest rates, although the consensus is for it to grow at a slower rate of 0.3 per cent month on month.

4. China PMI

We have a double dose of Purchasing Managers Index (PMI) reports for China on Friday at 10.30am, as both the National Bureau of Statistics and Caixin (private survey) release manufacturing and services reports at 11.30am and 11.45am respectively.

Manufacturing remains the main drag on the economy as the sector is contracting, while the services sector grows at a slower pace.

But with expectations for manufacturing to expand, it leaves the potential for risk assets (such as AUD) to benefit if it does, or at least decline at a slower rate than it currently is.

5. US core PCE inflation

Demand for inflation data remains as hot as the headline numbers.

And on Friday we will see if the Fed’s preferred gauge of inflation – core Personal Consumption Expenditures (PCE) – continues to move defiantly higher as expected, much to the dismay of the Fed.

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