US sharemarkets dived last week, closing almost 5 per cent lower after hotter-than-expected inflation data suggests the Fed will need to take interest rates higher than expected.

The ASX200 fell 2.25 per cent last week, outperforming Wall Street after Australian consumer and business confidence improved, and the Australian unemployment rate remained at a 50-year low.

Here are the top five things to watch in markets this week:

1. Fed set to raise rates

The US Federal Open Market Committee (FOMC) is set to meet Thursday morning and is expected to raise rates by 75-basis points into a range of 3 to 3.25 per cent.

After last week’s red-hot inflation data, the Fed is likely to provide hawkish guidance setting up the market for another 100-basis points of rate hikes and for the Fed’s funds rate to finish the year in a 4 to 4.25 per cent range.

2. Bank of England to raise rates

The Bank of England (BoE) interest rate meeting was supposed to occur last week.

However, due to the passing of Queen Elizabeth II, the meeting was postponed until this Thursday.

The BoE hiked rates by 50-basis points at its August meeting to bring the key rate to 1.75 per cent.

It is likely to follow it up with another 50-basis points rate hike this week, taking its official rate to 2.25 per cent.

3. Bank of Japan to hold rates, leave yen under pressure

The Bank of Japan (BoJ), untroubled by the inflationary issues other countries are facing, will likely leave its ultra-easy monetary policy unchanged.

The BoJ’s dovish stance, in contrast to the hawkish Federal Reserve, will keep the yen under pressure.

4. Release of RBA meeting minutes

The minutes from the last RBA board meeting to be released on Tuesday will reiterate that the RBA expects to raise interest rates further.

However, in line with the dovish tilt at the meeting, it is considering slowing the pace of hikes into year-end and “will be guided by incoming data”.

5. Has gold broken down?

After trading at $2070 six months ago, gold fell below $1670 last week and appears to have completed a double top.

If the breakdown is confirmed, the downside target is in the $1450 to $1270 region.

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