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US stocks rebound on dip-buying, oil steadies, USD hits 18-month high, bond yield curve steepens

All Street

Asia markets are set to open higher as Wall Street rebounded from a two-day selloff overnight. Investors bought the dip from the last two days' selloff while digesting the US Federal Reserve's hawkish guidance on combatting inflation. The bond yield curve steepened as a massive balance sheet reduction weighs more on the long-dated bond yield rather than those in short-dated bonds, suggesting the odds for near-term aggressive rate hikes may be less favored.

SPI futures rose 0.51%, pointing to a higher open on the ASX. Australia’s stock markets have suffered from the global equity weakness this week, with the benchmark index retreating from a one-year high of 7,573.40 to 7,442.80 on Thursday. All the big caps in energy and banks slid for the week. China’s ongoing lockdowns weigh on raw materials demand, which could be a key factor that weakens the outlook.

The NZX 50 was up 6 points in the first half an hour of trading. The local bank stocks may continue to benefit from the expectation of rising interest rates ahead of the RBNZ’s monetary policy decision next week. Heartland Bank's momentum remains strong. Air New Zealand slid for two days in a row amid the massive Rights Offer.

US and EU stocks

The Dow Jones Industrial Average climbed 0.25%, the S&P 500 was up 0.43%, and Nasdaq slightly rose 0.06%.

The defensive sectors, including consumer staples and healthcare, outperformed for the second straight trading day, indicating investors are more cautious about economic growth on the back of high inflation, coupled with an aggressive tightening monetary policy.

Energy stocks also gained as oil steadied. Devon Energy advanced 3.2%, Occidental rose 2.8%, and Chevron was up 1.3%.

The growth stocks recovered some losses from the previous days' selloff. Apple, Microsoft, and Tesla Motors Inc finished higher, while Alphabet, Meta Platforms, Amazon, and Nvidia were lower.

The bank sector continues to suffer from the Fed's guidance on the balance sheet unwinding, with Citigroup Inc down 1%, and JP Morgan Chase falling 0.3%.

The Europe major indices, however, extended losses on the Fed’s hawkish policy and extending sanctions on Russia. The Stoxx 50 fell 0.59%, DAX slid 0.52%, CAC 40 fell 057%, and the FTSE 100 was down 0.47%.

Treasuries

The US bond yields spiked further on Fed member James Bullard’s comments, in which he favors a larger scale of rate hikes to 3%-3.25% by the year-end. The 10-year US Treasury yield surged to 2.66%, the highest since March 2019. The 2-year Treasury yield was slightly down to 2.46%. The 2-year and 10-year bond yields curve steepened since the Fed’s minutes released the plan of the balance sheet reduction on Wednesday.

The Australian 5-year bond yield was slightly higher at 2.79%. The New Zealand two-year swap rose to 3.59%, the highest since February 2015 as markets are pricing in more aggressive rate hikes from the RBNZ next week.

Commodities

Oil prices bounced off the session lows and finished flat on Thursday. The US Congress voted to ban Russia’s oil and gas imports, together with revoking the normal trade relations. The oil prices face near-term pressure after the joint efforts of the oil reserve release by the US and IEA countries.

WTI futures traded at $97 per barrel, and Brent futures were at US$101.37 per barrel. The natural gas futures price jumped 6%, to US$6.39 per million British thermal units, the highest since December 2008.

The precious metal prices continue consolidating as safe-haven demands are mounting. The NYMEX gold futures were up $9.6, US$1,932.70 per ounce, and silver rose 1.04%, to $24.71 per ounce.

Currencies

The USD strengthened further to a fresh 18-month high, the dollar index climbed to 99.76 on Thursday, thanks to the Fed’s aggressive moves on tightening.

The commodity currencies extended losses against the US dollar on the recent moderating commodity prices. USD/CAD rose 0.38%, to 1.2591.

The other major currencies, including the Eurodollar, the Japanese Yen, the British Pound, and the Swiss Franc were all flat against the greenback.

Cryptocurrencies

Cryptocurrency markets are losing steam this week on positive correlation to risk assets. The whole market cap stays above US$2.01 trillion. All of the major digital tokens slid further, with Bitcoin down 1.49%, to just under $US43,291, and Ethereum was down 0.84%, to US$3,205 in the last 24 hours. 


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