Wall Street ended a mixed session as risk-off sentiment starts mounting ahead of the key job data that is due for release later on Friday. While safe-haven assets like gold and the Japanese Yen spiked, the WTI futures tumbled below $90 per barrel on demand concerns. The bond yields continued to decline, though serveral Fed officials reiterated the hawkish stance to bring down inflation. However, the 10-year and 2-year bond yields deepened inversion, with the yield spread widening the most since 2000.
The Bank of England raised the interest rate by 50 basis points on a prediction that the country’s inflation is running hotter to hit 13% in October, which is the biggest increase in 27 years. The governor again warns of an economic recession on the way later this year on the back of a soaring energy price and surging cost of leaving.
Elsewhere in Asia, Alibaba’s shares jumped 5% due to a beat on earnings expectations and positive guidance, lifting the other Chinese tech stocks and leading the Hang Seng Index to gain 2%. The optimism will be carried over to today’s session, with most of the Asian equity futures pointing to a higher open. However, the geopolitical tension between US and China around Taiwan affairs may continue to weigh.
AU and NZ day ahead
The S&P/ASX 200 is set to open slightly higher. However, the recent rebound may start fading with the energy and resources sectors under pressure. 7,000 will be a pivot resistance level that needs to be closely watched.
The S&P/NZX 50 fell 0.2% in the first-hour trading. The local equity’s recent rally may take a breather as the index reached a key resistance level of 11,700.
The Dow Jones Industrial Average fell 0.29%, the S&P 500 was down 0.08%, and Nasdaq rose 0.41%. The Cleveland Fed President Loretta Mester indicated to support the ongoing rate hike path to rein in inflation, one day after the St. Louis President James Bullard confirmed to back “front-loading” approach.
In the S&P 500, the growth sectors outperformed while energy stocks slumped. Big techs were mostly higher, with Amazon up 2.2% and Meta Platforms rising 1%. Coinbase shares jumped 10% on an announcement to partner with BlackRock.
The jobless claim is recorded at 260,000, the highest since November 2021. The non-farm payroll number is forecasted at 258,000, which will be the lowest since January, suggesting the labor markets may start slowing down.
The major companies’ performance overnight (05 August 2022)
Source: CMC Markets NG
Crude oil fell further on demand concerns on a cloudy economic outlook, with inflation keeping elevated and doubts about a pivot Fed. If commodities are not pricing in for an imminent economic recession, they might be preparing for a “stagflation” era when the unemployment rate starts picking up and inflation stays high. At the same time, gold jumped on a weakened US dollar and a slide in the bond yields. But these short-term trends could reverse once the bonds restart climbing.
The US dollar index fell 0.71%, to 105.63 due to a further decline in the US bond yields. This sent all the other currencies higher. The Eurodollar rose to nearly 1.0250 at the highs since late July. GBP/USD reversed early losses after the BOE’s 50 bps rate hike and finished the day session at a flat rate of around 1.2160. In commodity currencies, both Australian and New Zealand dollars strengthened further against the greenback, but the Canadian dollar weakened due to a slump in oil prices. USD/JPY fell to 132.80.
Both US and EU major government bond yields declined, while Australian and New Zealand yields steadied.
US 10-year: 2.69% US 2-year: 3.05%
Germany bund 10-year: 0.91% UK gilt 10-year: 1.91%.
Australia 10-year: 3.08%, NZ 10-year: 3.36%.
The crypto markets fell in the last 24 hours, with bitcoin down 0.75%, to 22,648, and Ethereum falling 0.61%, to 1,601.