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Wall Street extends gains despite another contraction in GDP

Recession

US stocks continued to rise despite another negative quarterly growth in GDP, which defines technical recession in the world-largest economy. The US second quarter GDP printed at -0.9% following a 1.6% contraction in the first quarter. However, bad news becomes good news as the Fed's odds for less aggressive rate hikes have strengthened. Amid the recent weak earnings reports from major tech companies, investors bid for a turnaround of the Fed's tightening approach, boosting the risk appetite. Apple and Amazon beat earnings expectations this morning, further lifting the tech shares in after-hours trading, indicating a positive open in the futures markets. Amazon’s shares jumped 12% on a beat of the revenue estimate.

Elsewhere in the crypto markets, both bitcoin and Ethereum strong rebounded for the second trading day, supported by the broad-based markets’ comeback. A peak of the rate hike cycle usually boosts risker assets with higher leverage. But skeptics doubt how long the markets’ rebound would last amid a darkened economic outlook.   

AU and NZ day ahead

Both Australian and New Zealand dollars were at the pace of strengthening against the US dollar since mid-June due to a weakened king dollar as the US bond yields declined. 

The S&P/ASX 200 futures rose 1%, pointing to a higher open in ASX today. The tech stocks may take further tailwind after Amazon lifted the US equity futures. However, the energy and mining sectors may be under pressure on a decline in oil prices.

The S&P/NZX 50 jumped 0.8% in the first half hour of trading. Meridian Energy rose 2.3% to NZ$4.97, or a 15% up from the low seen on 21 June. The renewable energy company announced that the owners of the Tiwai Point may extend the contract with the company after the current term to the end of 2024. Mainfreight was also up 2.88% at the open after a 5% jump on Thursday.

US

The Dow Jones Industrial Average rose 1.02%, the S&P 500 was up 1.21%, and Nasdaq advanced 1.08%.

10 out of 11 sectors in the S&P 500 finished higher, with real estate and utilities leading gains. In an economic downturn, defensive stocks usually outperform. Communication services are the only sector that ended in red due to a selloff in Meta Platforms stocks on its weak earnings reports. 

However, both Apple and Amazon’s earnings beat analyst expectations, continuing to support the tech rebound trends in US stocks. Amazon recorded a loss of $0.2 per share in the second quarter but beat the revenue estimate, with $121.23 billion versus $119.09 expected. Apple’s shares also rose 2.7% in the extended trading hour after a beat on both earnings per share and revenue. The iPhone maker reported EPS at $1.20 versus $1.16 expected, and $83 billion in revenue versus $82.81 billion estimated.

The major companies’ performance overnight (29 July 2022)

Source: CMC Markets NG

Europe

The major European indices were mostly up but the FTSE100 underperformed, dragged by healthcare, telecoms, and banks. The Stoxx 50 (+1.23%), FTSE 100 (-0.04%), DAX (+0.88%), CAC 40 (+1.30%).  Read more

Commodities

The commodity markets rebounded further, supported by the recent weakness in the US dollar, with Fed confirming a less aggressive rate hike after the 75 bps increase yesterday. However, the WTI crude futures pared early gains and finished lower after the US reported the second negative GDP growth. This is most likely triggered by profit-taking action by the traders, just being cautious about the possible recession-led demand disruption. But the oil prices have little chance of deep losses on the back of a weak US dollar and the ongoing supply crunch.    

WTI: US$96.42 per barrel (-0.86%), Brent: US$107.84 per barrel (+1.14%), Natural Gas: US$8.13 per MMBtu (-4.91%)

COMEX Gold futures: US$1,753.4 per ounce (+2.0%), COMEX Silver futures: US$19.99 per ounce (+7.45%), Copper futures: US$3.49 per ounce (+1.84%)

Wheat: US$817.00 per bushel (+3.38%), Soybean: US$1,440. 50 per bushel (+2.16%), Corn: US$619.00 per bushel (+2.65%).

Currencies

The US dollar softened on the negative GDP growth data, along with a further decline in the US bond yields, which boosted the Japanese Yen’s strength, with the USD/JPY slashing 1.7%, to 134. 45 at the lowest since 17 June. The other currencies were relatively flat against the greenback.

Treasuries

The less aggressive Fed’s tone and the second quarterly US GDP contraction pressed the broad bond yields to fall further, suggesting the rate hike cycle may have come to a peak.

US 10-year: 2.67%, US 2-year: 2.86%.

Germany bund 10-year: 0.82%, UK gilt 10-year: 1.86%.

Australia 10-year: 3.20%, NZ 10-year: 3.38%.

Cryptocurrencies

Major cryptocurrencies rebounded strongly for the second trading day along with the broad risk assets’ comeback on bets that the Fed’s hawkishness has reached a peak.

(See below prices at AEST 8:17 am according to Coinmarketcap.com)

Bitcoin: US$23,885 (+4.91%)

Ethereum: US$1,735.52 (+1.31%)

 

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