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US stocks settle calmly on Powell’s rate hike vows, Asian markets to open lower

Jerome Powell

Wall Street finished mixed after US Federal Reserve chair Jerome Powell reiterated keeping the current rate-hike path to tackle inflation at the European central bank forum. Meanwhile, the final read of US first-quarter GDP was revised down to -1.6% from -1.5% previously, while the GDP deflator jumped to a record high of 8.3%, pointing to a sharp slowdown in US economic growth, with looming recession fears.

Bond yields continued to drop as oil prices slumped from week highs. The fear gauge VIX stayed at 28.13, suggesting risk sentiment is somewhat recovering from the recent broad sell-off.

AU and NZ day ahead

Both the Aussie dollar and Kiwi dollar fell against the US dollar, to 0. 6882 and 0.6226 this morning, as the US negative GDP data and central banks’ determination to rein in inflation by aggressive rate hikes sparked renewed recession fears, along with recent weakened commodity prices.

The S&P/ASX 200 is set to open slightly lower as indicated by the futures markets. The benchmark index dropped 0.9% on Wednesday or 10% year to date. Flaring inflation and RBA’s hawkish turnround to the monetary policy complicated the economic outlook. The technology, financials, energy & mining, and material led the broad losses, all down more than 10% in June. In today’s session, the energy stocks are set to fall by tracing the US markets overnight.

The S&P/NZX 50 fell 0.23% in the first half-hour of trading, with Vector, Auckland Internationals Airport, and F&P Healthcare leading losses. Skellerup Holdings, Air NZ, and Pushpay are among the biggest gainers at the open. Notably, the manufacturer Skellerup’s shares surged 20%, to NZ$5.37 this morning from the low on15 June, supported by strong growth prospects of revenue growth.

US

The Dow Jones Industrial Average rose 0.25%, S&P 500 was down 0.07%, and Nasdaq slipped 0.03%.  Apart from the Fed Chair’s speech, the FOMC voting member Cleveland President Loretta Mester also indicated a 75-basis points rate hike on the table in July if high inflation persists.

The defensive and growth sectors outperformed, while energy stocks fell. The major energy producers, including Occidental, Devon Energy, and Exxon Mobil all fell between 3-6%. The mega-caps were mostly higher, with Apple, Amazon, Microsoft, and Meta Platforms up between 1-2%. Tesla shares dropped 1.8% after the EV maker laid off more than 200 workers in its California facility. The semiconductor stocks have been facing pressure due to a downgrade in valuations, with Nvidia down 2.8%.

Europe

European stocks slid on ECB members’ comments about the strong prospect to raise the interest rates at a faster pace to rein in inflation. It is expected that inflation may flare to 6.8% in Euro Zone this year. Spanish inflation for June printed at more than 10%, the highest since 1985. But the German state of North-Rhine Westphalia fell unexpectedly.

In addition, the NATO summit has reached an agreement to include Sweden and Finland as members as backed by Turkey. 

The Stoxx 50 (-0.99%), FTSE 100 (-0.15%), DAX (-1.73%), CAC 40 (-0.90%). 

Commodities

Crude oil prices slid as the EIA data shows that petroleum inventories rose by 2.6 million for the last two weeks ended on 24 June, despite a draw of crude inventories. Recently central banks’ aggressive rate hikes and a slowdown in the global economic growth have been pressuring commodity markets. Bets of more release of the US oil reserve and OPEC’s increase of oil output also retrained the oil market’s upside momentum.

WTI: US$109.78 (-1.98%), Brent: US$115.78 (-2.20%), Natural Gas: US$6.50 (+0.07%)

Gold futures consolidated at above $1,810 per ounce. The base metal has been moving in a tight range. On one side, the risk-off sentiment supports the stable movements, on the other side, a strong USD and high bond yields have restrained the upside trend.

COMEX Gold futures: US$1, 819.5 (+0.11%), COMEX Silver futures: US$20.73 (-0.01%), Copper futures: US$3.77 (+0.00%)

Agricultural products rebounded.  

Wheat: US$930 (-0.64%), Soybean: US$1,478.25 (+1.08%), Corn: US$653.75 (-0.83%).

Currencies

The US dollar index rose 0.6%, to 104.865 as recession fears strengthened haven demands. USD/JPY rose further to a fresh 24-year high at 136.60 at the back of extreme divergence of the monetary policies. The Eurodollar fell on ECB President Lagarde’s comments. EUR/USD dropped to 1.0440 at the 8:45 am AEST, and may head to the June low at 1.0360. Commodity currencies slipped due to risk-off trades. However, the Swiss Franc firmed against the greenback as seen as a haven currency after the SNB’s surprisingly rate hike earlier this month.

Treasuries

The US bond yields continued to fall.

US 10-year: 3.09%, US 2-year: 3.04%.

Germany bund 10-year:1.51 %, UK gilt 10-year: 2.38%.

Australia 10-year: 3.69%, NZ 10-year: 3.88%.

Cryptocurrencies

The crypto markets slid marginally in the last 24 hours, but the recent movements have been stabilized despite negative news lingering around the crypto world. According to CNBC, the cryptocurrency hedge fund Three Arrows Capital has fallen into liquidation. And Crypto exchange CoinFlex will not lift the withdrawal freeze that was placed on 23 June.

(See below prices at AEST 8:38 am according to Coinmarketcap.com)

Bitcoin: US$20,171 (-0.85%)

Ethereum: US$1,107 (-4.23%)

Cardano: US$0.4662 (-1.17%)


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