Wall Street settled mixed on Wednesday as traders were awaiting the Fed rate decision to be announced on Thursday. Tech shares’ rebound led Nasdaq to outperform, while the US 10-year treasury yield climbed further to a fresh 11-year high as the market participants priced in a strong hawkish Fed for a possible 75 basis points rate hike. The US 30-year mortgage rate surged to 6.28% from 5.55% a week ago, driving the US housing market to slide for the 6 straight months.
Asian equity markets are set to open lower as major index futures were mostly down, suggesting risk-off sentiment continues to prevail. Notably, the Chinese equity markets finished higher, boosted by tech and EV stocks on strong earnings and outlook optimism.
However, the meltdown in the cryptocurrencies may be far away from an end, with bitcoin briefly falling under 21,000, deepening losses to a fresh 18-month low.
AU and NZ day ahead
ASX is set to slip slightly at the open, as the SPI futures were down 0.6%. ASX 200 fell for the third straight trading day, down 3.55% on Wednesday, to a 15-month low. The index slumped 8% from the June high at above 7,200. With RBA’s vows to bring the inflation back down to the 2-3% target, more aggressive rate hikes are expected. Inflation is running hotter and hotter, which may rise to 7% from the current level of 5.1% by the year-end, said the Reserve bank governor. The Australian 10-year bond yield spiked to above 4%, the highest since March 2014.
The S&P/NZX 50 fell 0.21% in the first half-hour of trading. The bank stocks may continue to be pressured by a flattened yield curve as rising funding costs and slumps in the housing markets are hurting profit margins. New Zealand’s home sales fell 28.4% year on year in May, according to REINZ. On the bright side, the traveling-related stocks may benefit from a rebound in tourism as the stats shows that Auckland Airport's total number of passengers rose 19.3% from a year ago in May, with international passengers up 108.7%.
The Dow Jones Industrial Average was down 0.5%, the S&P 500 slid 0.38%, and Nasdaq was up 0.18%.
9 out of 11 sectors in the S&P 500 extended losses, while energy and technology stocks were higher. Oracle's shares rose 9% after the company reported a stronger than expected earnings report, in which its cloud revenue jumped 19% YoY, and boosted optimism of tech shares dip-buys. Microsoft, Alphabet, and Apple were up less than 1%, while Meta Platforms and Amazon finished lower. Tesla Motors rose 2.42%.
Crude oil prices fell on the news that President Joe Biden and Saudi Arabia's crown prince will meet in July to further discuss OPEC’s output. The recent risk-off sentiment has also capped the oil markets’ gains, with concerns that the Fed’s possible 75 bps rate hike will put the US economy into a recession sooner. At the same time, Natural gas prices plunged on a temporary oversupply issue. The US LNG plant, Freeport LNG facility, delayed processing following an explosion last week, which could cause a 2% oversupply.
WTI: US$118.51(-0.39%), Brent: US$121.17 (-0.90%), Natural Gas: US$7.29(-15%)
Precious metals continued to fall on a surge in bond yields and a strong US dollar.
COMEX Gold futures: US$1, 810.2 (-0.19%), COMEX Silver futures: US$21.01(-0.43%), Copper futures: US$4.14 (-0.41%)
Agricultural products fell.
Wheat: US$1, 065.25 (-1.91%), Soybean: US$1,525 (-0.55%), Corn: US$721.25 (-0.03%).
US dollar strengthened further as the US bond yields hit a fresh 11-year high. USD/JPY rose to the highest level since 1998, while sterling slumped to the lowest since March 2020. Commodity currencies continued to suffer from the broad market rout, with resources’ prices slumping ahead of the Fed meeting.
(See the below FX rates at EAST 8:56 am, Bloomberg)
US dollar index: 105.25 (+0.27%)
Bond yields spiked further as the bond selloff intensified. Both Australian and New Zealand bond yields soared to above 4%.
US 10-year: 3.473%, US 2-year: 3.439%.
Germany bund 10-year: 1.744%, UK gilt 10-year: 2.584%.
Australia 10-year: 4.057%, NZ 10-year: 4.267%.
Crypto markets stayed at an 18-month low. With some major crypto exchanges pausing withdrawal services, the fears are growing about the stability of the industry. The risk-off trades may send the leading coins lower to test key support levels, with expectations that the bullish cycle of these digital coin markets might have long gone.
(See below prices at AEST 9:08 am according to Coinmarketcap.com)
Bitcoin: US$21,729 (- 3.53%)
Ethereum: US$1,183 (- 0.91%)
Cardano: US$0.4748 (+5.44%)
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