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Wall Street gains despite more 75 bps rate hikes on cards, Asian market to follow the rally

Stock markets

US stocks gained after the Fed’s minutes reaffirmed a possible 50-75 basis points rate hike in July to tame the sticky inflation. Despite the consistent hawkish stance of the reserve bank, investors doubt an ongoing aggressive tightening policy on the back of a sharp declining economic growth. The US ISM service PMI for June printed at 55.3 from 55.9 in the prior month, which is the lowest in more than two years. Coupled with a two-year low ISM manufacturing PMI data that was released last week, this suggests that the US economic activities substantially slowed amid the global headwinds. 

The commodity markets continued to price in an economic recession, with the WTI Crude oil at NYMEX down 1.4%, to US$98.13 per barrel, and ICE Brent Crude down 3.01%, to US$99.61 per barrel. In the bond markets, the benchmark bond yields on the 10-year and 2-year notes stayed inverted, repeatedly flagging a recession alert. The growing bets of a “Fed pause” after July are leading to a corrective market rally, with the growth stocks taking the strongest tailwind.

In China, a new wave of covid outbreak flares concerns of a renewed lockdown in the major cities, such as Beijing and Shanghai. Asian markets mostly finished lower on Wednesday, with CSI 300 leading losses. However, the overnight US session boosted the futures markets, indicating a higher open for most regions.

AU and NZ day ahead

The S&P/ASX 200 is set to open higher as the SPI futures rose 0.55%. The energy and financial heavy index may continue to be under pressure following the recent poor performances of the two sectors in the US markets. Plus, China’s new wave of the covid outbreaks sparks concerns about softened demands, which will restrain gains in the local markets.

The S&P/NZX 50 jumped 0.5% at the open, following the overnight US stocks rally. Investors sought a market bottom reversal rally since mid of June after a nearly 20% drop YTD. Despite overwhelming recession fears, the RBNZ’s front-loading rate hikes are expected to tame inflation and become less aggressive after another 50-bps hike in July. In contrast to the RBA which joined the central banks’ rate-hike club last, the New Zealand equity markets may be trying to find a bottom to take the policy tailwind as the local bond yields start pointing to a downturn in rates, indicating that the mortgage rates are peaking. Air NZ, Manawa energy, and Pushpay Holdings all opened higher above 1%. Fonterra Shareholders Funds jumped nearly 2%.

US

The Dow Jones Industrial Average rose 0.23%, the S&P 500 was up 0.36%, and Nasdaq advanced 0.35%.

The growth stocks again led the broad gains, while energy continued to suffer from plunging oil prices. Big techs mostly closed in green, with Apple, Amazon, Alphabet, Microsoft, and Meta Platforms up around 1%. But Tesla Motors shares slid 0.6% on a weakened number of deliveries in the second quarter. All the energy stocks, including Occidental, Devon Energy, and Exxon Mobil all fell. 

The major companies’ performance overnight (7 July 2022)

Source: CMC Markets NG

Europe

The Europe major indices all finished higher as markets tried to rebound from the recent sharp declines, which was also supported by the US stocks’ comeback this week. The tech and retail shares led to broad gains. Just Eat Takeaway soared 15% on Amazon’s agreement to take a 2% stake. The UK prime minister continued to face the challenges of being forced to resign by ministers.

The Stoxx 50 (+1.85%), FTSE 100 (+1.17%), DAX (+1.56%), CAC 40 (+2.03%). 

Commodities

A skyrocketed US dollar and recession selloff continued to send jitters to the commodity markets, with crude futures consolidating under the $100-mark. China’s lockdown threat added more pessimism to the beaten-down markets. Precious metals have taken a hit by the strong USD, while the material metals hardly rebounded amid softening order demands. Agricultural product’ prices stayed at the recent lows.  

WTI: US$98.13 per barrel (-1.38%), Brent: US$99.61 per barrel (-3.07%), Natural Gas per MMBtu: US$5.51(-0.24%)

COMEX Gold futures: US$1, 736.50 per ounce (-1.55%), COMEX Silver futures: US$19.16 per ounce (-0.20%), Copper futures: US$340.80 per Ib. (-0.20%)

Wheat: US$804.50 per bushel (-0.31%), Soybean: US$1, 322.75 per bushel (+0.51%), Corn: US$585.00 per bushel (+1.12%).

Currencies

The US dollar index rose 0.53%, to a fresh 20-year high at 106.885 as the Eurodollar accelerated falling amid a bleak regional economic outlook. EUR/USD is now at just above 1.0180, down 20% in one month from above 1.22, heading to the parity level seen in December 2020. All the other currencies weakened further against the greenback, with both Aussie and Kiwi dollars falling to the lowest level since June 2020. The Canadian dollar steadied at about 1.3040, which is near a pivotal resistance price level at 1.3080.

Treasuries

The US bond yields climbed after the Fed’s meeting minutes indicate that a further 75 bps rate hike may be on the table.

US 10-year: 2.93%, US 2-year: 3.00%.

Germany bund 10-year:1.20%, UK gilt 10-year: 2.09%.

Australia 10-year: 3.40%, NZ 10-year: 3.66%.

Cryptocurrencies

The crypto markets steadied on Wednesday as recent tech shares’ comeback fuels optimism toward the crypto world.

(See below prices at AEST 8:07 am according to Coinmarketcap.com)

Bitcoin: US$20,367(-0.05%)

Ethereum: US$1,163 (+1.09%)

Cardano: US$0.4604 (-1.94%)


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