The S&P 500 enters the new week on the back of its longest losing streak since December, having fallen 4 days on the trot. Markets are growing concerned about the risk of the Fed eventually pulling back its support as the US economy shows surer signs of recovery.

Amidst this conundrum, here are some key speeches and events that could influence global market sentiment this week:

  • Monday, 22 Feb: Treasury Secretary Janet Yellen speech
  • Tuesday, 23 Feb: Fed Chair Jerome Powell’s testimony (Senate); US consumer confidence
  • Wednesday, 24 Feb: Fed Chair Jerome Powell testimony (House); speeches by Fed Governor Lael Brainard and Fed Vice Chair Richard Clarida
  • Thursday, 25 Feb: Fed speak: Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard, New York Fed President John Williams
  • Friday, 26 Feb: House may vote on $1.9 trillion US fiscal stimulus; US consumer sentiment, personal income and spending

 

Key themes

  • More US fiscal stimulus coming soon?

The trading week will be bookended by events pertaining to the $1.9 trillion US fiscal stimulus programme, which is a pillar for equity bulls. On Monday, US Treasury Secretary Janet Yellen is expected to extol the virtues of rolling out more government spending to help the US economy recover. By Friday, Democrats hope to put President Joe Biden’s $1.9 trillion fiscal stimulus proposal before its first floor vote in the House.

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Equity bulls may draw more support from any positive comments or developments surrounding the next wave of US fiscal stimulus, which may push benchmark indices higher.

With the S&P 500 having pulled further away from overbought levels, that may have cleared the path ahead for this blue-chip index to explore higher ground. The futures contract is now inching lower at the time of writing.

 

  • Fed to push back once more against easing policy support

Another major theme in the markets so far this year has been the thought that the US economy, aided by swathes of fiscal and monetary policy support, could recover much quicker than anticipated. And should the US economy outperform, accompanied by faster inflation, it could prompt the Fed to reduce its asset-purchasing programme sooner than expected. Or so the narrative goes in the markets.

Such an idea has prompted investors to sell off US Treasuries, causing 10-year yields to rise to pre-pandemic levels above 1.30 percent, now around their highest since February. The spike in yields has in turn provided support for the dollar index (DXY) while dragging gold prices lower.

Should yields continue climbing higher this week, encouraged by better-than-expected data for consumer sentiment and personal income/spending due this week, that could drag bullion even lower. Gold’s support region around $1760 from the end-November low appears to be holding for the time being.

Besides the US economic indicators, gold traders will also be paying attention to Fed Chair Jerome Powell’s pair of testimonies before Congress along with the scheduled speeches by other Fed officials over the coming days.

Should markets grow convinced that the Fed is truly willing to tolerate an overheating US economy while leaving its existing policy support untouched, that may dampen US yields while offering some lift to gold prices.

If markets hold on to the existing narrative (pre-empting the Fed’s tapering plans even as US inflation remains subdued), then that could continue to exert downward pressure on the precious metal and could even push it closer to the psychologically-important $1700 mark.

 

LISTEN TO THE “MARKETS EXTRA” PODCAST: Will the Fed trigger a “taper tantrum” or “taper rally”?

 

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