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US stocks extend losses on Fed officials’ hawkish reiteration, Pelosi’s Taiwan trip

Fed

Wall Street finished lower for the second straight trading day as US House Speaker Nancy Pelosi’s Taiwan trip added geopolitical tension and the Fed officials reiterated consistent rate hikes to combat inflation, which dented odds for a "Fed pause" by the year-end. According to the CEM FedWatch Tool, the probability of a 50-basis points rate hike in September fell to 60.5% from above 70% last week, while the odds of a 75-basis points hike rose to 39.5%. The 10-year US bond yield rose to 2.74% from 2.59% a day earlier, which lifted the US dollar and snapped a three-day losing streak.

In Aisa, major indices also fell due to the intensifying US-China tension amid the US official’s Taiwan visit, with Hang Seng Index sinking 2.36%, and the CSI 300 Index down 1.95% on Tuesday. The Chinese tech giant, Alibaba’s shares slipped 2.84% in the Hong Kong market ahead of the earnings report later today. Asian futures are pointing to a mixed open in today’s session.

AU and NZ day ahead

Due to a jump in the king dollar, both Aussie and New Zealand dollars fell against the greenback, with AUD/USD falling more than 1%, to just above 0.69 after the RBA raised the cash rate by another 50 basis points, along with a sharp fall in the Australian bond yields. The reserve bank revised the Australian inflation expectation to 7.75% from 6% at a peak towards the year-end, saying the policy is not on a pre-plan path, which has softened its hawkish stance from the last policy meeting.

The S&P/ASX 200 futures were down 0.16%, pointing to a slightly higher open in today’s session. But the RBA’s hints to slow down rate hikes have lifted the local equity markets on Tuesday, with consumer stocks leading gains. The banking sector has also outperformed.

The S&P/NZX 50 continued its rebounding trend on Tuesday, up for the fourth consecutive session, to 11,532.46, the highest in almost three months. A2 milk’ shares jumped 12% on a report that the company was receiving US FDA’s approval to sell its baby formula.

US

The Dow Jones Industrial Average fell 1.22%, the S&P 500 declined 0.66%, and Nasdaq was down 0.16%. Chicago Fed Presidents Charles Evans said that the Fed should raise the interest rate by 50 basis points in September, followed by a quarter percentage afterward till mid-2023, which is more hawkish than the market participants' bets of a “Fed pause” by the year-end.

All the 11 sectors in the S&P 500 ended in red, led by material and financials. A jump in the short-dated bond yields outpaced the long-dated yields, which deepens the 2-year and 1-year yield inversion, pressing on the bank sector. By contrast, the growth sectors were relatively stronger, with Uber’s shares jumping 10% on a beat of the earnings estimate.

In after-hours trading, Starbucks shares were up more than 1.7% as the company topped earnings expectations. The coffee giant’s net sales rose 9% to $8.15 billion year on year. AMD’s shares shed 6% despite a beat on earnings estimates as CEO Lisa Su indicated a decline in the PC business in the third quarter. Robinhood’s share price was slightly lower, though the company reported disappointing earnings while announcing a further cut of 23% jobs.

The major companies’ performance overnight (02 August 2022)

Source: CMC Markets NG

Europe

The major European indices fell on uncertainties caused by Pelosi’s Taiwan trip. The Stoxx 50 (-0.59%), FTSE 100 (-0.06%), DAX (-0.23%), CAC 40 (-0.42%).  Read more

Commodities

Crude oil edged lower ahead of the OPEC + meeting today as traders eyeing a potential agreement of the cartel’s members to lift output volume after September, while US House Speaker Pelosi’s Taiwan visit has added a risk element to sentiment.  A strengthened US dollar also pressured the commodity markets.

WTI: US$93.68 per barrel (-0.21%), Brent: US$99.63 per barrel (-0.40%), Natural Gas: US$7.71 per MMBtu (-6.97%)

COMEX Gold futures: US$1,776.2 per ounce (-0.64%), COMEX Silver futures: US$19.93 per ounce (-2.12%), Copper futures: US$3.47 per ounce (-1.96%)

Wheat: US$774 per bushel (-3.28%), Soybean: US$1,382.25 per bushel (-1.69%), Corn: US$593 per bushel (-2.75%).

Currencies

The US dollar index rebounded after a three-day fall on the comments from Fed officials. The USD/JPY snapped the recent losing streak, up 1.2%, to just above 133. All the other currencies also weakened against the US dollar. The Eurodollar lost almost 1 US cent against the greenback, to 1.0172 this at AEST 8:40 am.

Treasuries

The US and EU bond yields were up amid the above factors. But both Australia and New Zealand bond yields fell on the RBA’s less aggressive tone on rate hikes.  

US 10-year: 2.75%, US 2-year: 3.05%.

Germany bund 10-year: 0.81%, UK gilt 10-year: 1.86%.

Australia 10-year: 2.97%, NZ 10-year: 3.29%.

Cryptocurrencies

The crypto markets held up despite mounting risk-off sentiment.

(See below prices at AEST 8:03 am according to Coinmarketcap.com)

Bitcoin: US$23, 123 (+0.34%)

Ethereum: US$1,650 (+1.63%)

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