Broad risk assets downturn, Central banks meetings in focus

Following a brutal week on Wall Street due to mixed earnings and expectations of rising interest rates, the dollar is climbing to its two-week highs on Monday. Meanwhile, risk assets are under pressure in light of increasing geopolitical tensions between Ukraine and Russia.

Cryptocurrencies bloodbath follows recent government crackdowns on private digital currencies, including the Russian Central Bank's outright ban on cryptocurrency mining and use.

Bitcoin, among other digital currencies, continues to fall after dropping more than 50% from its all-time high of $69,000 in November. This popular cryptocurrency is now trading on the verge of its lowest level since July 2021.

The sell-off in the tech-heavy Nasdaq Composite was even more severe on Monday following the benchmark dropping 7.6% last week. As a result, the index is more than 16% below its November record close, falling deeper below its 200-day exponential moving average.

Events of the week

RBA policy changes next week may be influenced by the inflation data released this week after disappointing manufacturing and services PMIs kicked out on Monday. Investors are expecting annual inflation to climb above the RBA's 2% - 3% target at 3.2% in Q4 2021, with quarterly CPI growth remaining at 0.7%. If prices rise faster than expected, traders will price in the end of RBA bond-buying in February and rate hikes as soon as May or June.

A two-day Fed meeting starts on Tuesday, and the central bank is expected to announce the start of interest rate increases in March as well as the reduction of its holdings of Treasuries and mortgage debt, which have ballooned its balance sheet beyond $8 trillion. There will likely be one rate hike in March and three more by the end of the year for a total of 1.0%.

The Bank of Canada (BOC) initially unveiled its plans to raise interest rates by the middle of 2022. Yet a rebound from the Omicron wave and annual inflation hitting its highest levels in almost 30 years may force BOC members to raise rates this week. Markets expect a 25 basis point hike from 0.25% to 0.50%, and perhaps more in the future.

The increase in COVID-19 cases, new restrictions, and decreased government assistance payments slowed Q3 2021 US economic growth from 6.7% to 2.3%. The first reading for Q4 2021 is expected on Thursday to show 5.5% annual growth, a finding that would confirm a diminished need for further stimulus.