Week Ahead: Volatility Catalysts To Increase, Pressuring Equities, Boosting Gold

Add soaring oil prices to the list of accelerating fundamental triggers likely to boost volatility for US major indices during the upcoming, holiday-shortened trading week.

Existing catalysts include Federal Reserve tightening as the US central bank continues to decide how to handle escalating inflation plus plenty of economic data to sift through, perhaps especially Friday's personal consumption expenditures print, considered one of the Fed's most significant inflation gauges. As well, markets will be eyeing the mounting threat of Russia invading the Ukraine.

In addition, investors will be focusing on another week of quarterly reports as this earnings season winds down. Retailers such as Home Depot (NYSE:HD) and Macy's (NYSE:M) will be releasing results along with a group of energy companies such as Occidental Petroleum (NYSE:OXY) and Coterra Energy (NYSE:CTRA).

With so many variables in play, it's difficult to imagine a calm week of trading on the horizon.

Major US Indices Reverse, Yields Rise, Gold Breaks Out

Each of the leading US indexes—the S&P 500, NASDAQ, Dow Jones and Russell 2000—has fallen below its 200 DMA recently, for the first time since crossing over the major MA at the 2020 bottom. The Dow is down 1.9% for the week, with the tech-heavy NASDAQ Composite 1.8% lower. The SPX slumped 1.6% for the week, for a YTD loss of 8.8%.

The S&P 500 is now trading according to a reversal pattern.

SPX Daily

The broad benchmark may be completing the right shoulder of an H&S top.

Treasury yields, including for the 10-year benchmark note, which tend to negatively correlate with equities, may be set to continue higher.

UST 10Y Daily

The 10-Y Treasury rate fell during the final three days of the trading week but seems to have found support at previous lows. Even if yields slip back toward 1.8%, we expect such a decline to be short-lived, following back-to-back continuation patterns.

Higher yields mean higher rates will weigh on the price of stocks. As well, higher yields offer better investment returns, thereby competing for capital with stocks.

During the final two days of the trading week the dollar strengthened. But the greenback is still stuck in a sideways pattern, in play since mid-November. Presumably, tightening will boost the global reserve currency, pushing it into a clear uptrend.

Gold, meanwhile, recently enjoyed such an upside breakout, ending a range of its own in play since the precious metal posted its August 2020 record. While the yellow metal could continue rising on its safe haven status, so could the USD. We saw both assets rise in tandem after Donald Trump's surprise White House win in 2016.

Gold Daily

Note: Gold could still retest the triangle's support, not to mention the bottom of its rising channel, even if the precious metal were to ultimately continue higher.

Unlike the actual haven commodity, Bitcoin, which crypto aficionados tout as a haven asset, has been falling. The leading crypto token is down for the fourth straight day, having experienced only a slight rise on Saturday.

BTC/USD Daily

The cryptocurrency has fallen back below the 50 DMA and seems to be continuing the downside breakout of a large H&S top. Any attempt by bulls to create a contrarian, smaller H&S bottom appears to be failing.

Though it's been rising overall, oil recorded its first weekly decline in nine weeks. According to Reuters, investors were weighing "a potential supply disruption resulting from the Russia-Ukraine crisis against the prospect of increased Iranian oil exports."

The Week Ahead

All times listed are EST

Monday

President's Day Holiday in the US, Family Day in Canada – Local Markets Closed

3:30: Germany – Manufacturing PMI: seen to edge lower to 59.5 from 59.8.

4:30: UK – Manufacturing PMI, Services PMI: previous releases printed at 57.3 and 54.1 respectively.

8:15: China – PBoC Loan Prime Rate: previous interest rate set at 3.70%.

Tuesday

4:00: Germany – Ifo Business Climate Index: expected to edge up to 96.5 from 95.7.

10:00: US – CB Consumer Confidence: anticipated to fall to 109.8 from 113.8.

20:00: New Zealand – RBNZ Interest Rate Decision: forecast to rise to 1.00% from 0.75%.

Wednesday

5:00: Eurozone – CPI: likely to crawl higher, to 5.1% from 5.0%.

Thursday

8:15: UK – BoE Gov Bailey Speaks

8:30: US – GDP: probably edged higher, to 7.0% from 6.9%.

8:30: US – Initial Jobless Claims: predicted to decline to 235K from 248K.

10:00: US – New Home Sales: expected slip to 807K from 811K.

11:00: US – Crude Oil Inventories: last week's reading showed a boost of 1.121M bbl.

Friday

2:00: Germany – GDP: seen to remain flat at -0.7% QoQ.

8:30: US – Core Durable Goods Orders: anticipated to retreat to 0.4% from 0.6%.

10:00: US – Pending Home Sales: forecast to jump to 0.5% from -3.8%.

Tentative: US – Fed Monetary Policy Report