Marketmind: Drawing Breath After Tumultuous Week

A look at the day ahead in Asian markets from Jamie McGeever.

Asian markets kick off the trading week on Monday, with investors probably still reeling from what was one of the most dramatic weeks in recent market history.

The week ahead surely won't be anywhere near as volatile.

Just to recap, weaker-than-expected U.S. inflation figures for October on Thursday sparked a dramatic repricing of the Fed's policy path next year, slamming the dollar and fueling a huge rally in stocks, risk assets, and bonds.

The two-year Treasury yield plunged 30 basis points on Friday, its biggest fall since 2008; the Nasdaq was up 8% on the week; and the dollar was down 4%, amazingly, its fourth biggest weekly decline since the era of free-floating exchange rates began over 50 years ago.

Dollar index has 4th biggest weekly fall ever

Oh, and if that wasn't enough, the crypto universe was plunged into complete chaos after the dramatic multi-billion dollar collapse of crypto exchange FTX and fall from grace of its 30-year old founder Sam Bankman-Fried.

If investors can zoom out a little and put the crypto circus to one side, they may take the view that last week did indeed mark a fundamental shift: inflation has peaked, the Fed and other central banks will not tighten as much, and the dollar has turned.

A more bearish analysis might also note that next year is likely to be marked by recession across much of the world as the lagged impact of recent tightening finally hits. Cooling inflation and less aggressive tightening will not necessarily mean risky assets do well.

As market participants regroup, reassess, and re-position, the week ahead is packed with the regular flow of economic data and policymaker speeches.

There is also the face-to-face meeting between U.S. President Joe Biden and Chinese leader Xi Jinping at the G20 summit in Bali on Monday. It's safe to say relations between the two superpowers are frosty, so any sign of thawing could add to the positive market sentiment spilling over from last week.

Three key developments that could provide more direction to markets on Monday:

Biden-Xi meeting

India inflation (October)

Fed's Brainard speaks