Last week's tumultuous market movements have given way to a calmer scene, with the S&P 500 closing higher and US 10-year yields dropping below 2.9% by the February 16 close, but that's doesn't mean that volatility won't flare up again. "Volatility has fallen but we're not out of the woods yet and any 'good' economic data could spark further nervousness," says Althea Spinozzi of Saxo Bank's bond trading desk.
John J Hardy, Saxo's head of FX strategy, notes that the US dollar's gains against its peers have come "with no obvious catalyst besides the resumption of risk appetite" so tracking the market's willingness to accept risk will be key to the coming week's developments. One feature that should be closely monitored is China's response to US president Trump's suggestion of tariffs on imports of steel and aluminium, as this protectionist move could trigger harmful retaliatory action.
In equities, the S&P 500 may have recovered about half of its recent decline but the main question now is whether the rebound can extend, says Peter Garnry, Saxo's head of equity strategy. "The VIX index remains above average and could easily become more volatile again," he says.
Finally, risks of another kind are at play in the crude oil market, following a flare-up in tensions between Israel and Iran at the weekend, which, says Ole Hansen, Saxo's head of commodity strategy, is supporting the price of crude although soaring shale production is still likely to keep the market capped.
Brent crude oil has retraced 38.2% of its recent rally:
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.