The equity markets across Asia are set to open lower as indicated by the futures markets following a mixed close in the US stocks overnight. Wall Street pared early losses as big techs regained steam on dip-buys. Crude oil tumbled below $100 on recession fears, while gold slumped as the US dollar hit a fresh 20-year high. The US 10-year and 2-year bond yield inverted again, flashing a recession alert.
The broad commodity markets plunged on concerns that the China’s financial hub, Shanghai, may go back to lockdown due to the renewed covid outbreak. The barometer industrial metal, copper futures declined 4.7% to the lowest since November 2020. Rapid rising interest rates, a slowdown in the economic growth, and signs of weakening labour markets spooked the broad markets. However, the sharp drops in the commodity prices may help to cool down inflation, and a slip in the bond yields could also buffer the recent liquidity crunch.
AU and NZ day ahead
The plunge in the commodity markets sent both Australian and New Zealand dollar lower as the USD spikes. AUD/USD and NZD/USD were at about 0.6800 and 0.6170 respectively this morning.
The S&P/ASX 200 is set to open lower as the SPI futures were down 0.92% overnight. The Australian dollar plunges after the RBA rose interest rate by another 50 basis points to 1.35% on a deteriorated economic outlook. The AUD/USD fell 1%. The energy and mining sectors may also take a hit by the price drops in resources. The Australian equity markets are expected to be under pressure following the volatile session in the US markets, while China’s covid outbreak brings uncertainties.
Despite the broad selloff in the commodity markets, the S&P/NZX 50 was up 0.2% at the open. The GDT price fell 4.1%, which is the 8th price fall in the last 9 auctions due to softened demands of China. The whole milk pounder price was down by 3.3%, to US$3,961. The strong USD also restrains commodity prices. Air NZ shares opened strongly again, up 2.4% at NZ$0.64, followed by Sky City Entertainment, up 2%, at NZ$2.83.
The Dow Jones Industrial Average was down 0.42%, the S&P 500 rose 0.16%, and Nasdaq advanced 1.75%.
Growth stocks, including consumer discretionary (+2.28%), technology (+1.24%), and communication services (+2.66%) sectors outperformed, while the energy (-4.01%), materials (-2.00%), and utility (-3.43%) stocks fell on recession concerns.
The mega-caps rebounded strongly, suggesting that investors believe these beaten-up tech giants could whether the economic storm.
The major companies’ performance overnight (6 July 2022)Source: CMC Markets NG (Click to see the enlarged picture)
The Europe major indices slumped on a darkened economic outlook. In UK, three senior UK officials, including the Health Secretary Sajid Javid, the former education secretary, Nadhim Zahawi, and the Solicitor General Alex Chalk, resigned in proetst over the PM Boris Johnson's leadership. The Stoxx 50 (-2.68%%), FTSE 100 (-2.86%), DAX (-2.91%), CAC 40 (-2.68%).
Crude oil futures tumbled as the commodity markets are pricing in an economic recession, which will weaken the fuel demand despite the war-induced undersupply issues. Shanghai’s lockdown risk also intensified the selloff.
WTI: US$99.50 (-8.24%), Brent: US$102.99 (-9.26%), Natural Gas: US$5.52(-3.61%)
Precious metals plunged as the US dollar index soared to a new 20-year high. And industrial material metals fell further on the broad recession fears.
COMEX Gold futures: US$1, 763. 90(-2.09%), COMEX Silver futures: US$19.12 (-2.78%), Copper futures: US$342.9 (-4.87%)
Agricultural products also deepened losses due to the broad selloff in the commodity markets.
Wheat: US$807.00 (-4.61%), Soybean: US$1, 316.00 (-5.68%), Corn: US$578.50 (-4.77%).
The US dollar index soared 1.37%, to a fresh 20-year high at 106. 51. The Eurodollar fell sharply against the greenback, to 1.0266, the lowest since December 2020. However, the USD/JPY retreated from the session high and rose marginally to 135.86 due to a slide in the US bond yields.
All the commodity currencies slumped against the USD. Apart from Aussie and Kiwi, the Canadian dollar also plunged. The USD/CAD rose 1.3%, to 1.3033 this morning.
The US bond markets experienced wide swings overnight as bond traders assess aggressive rate hikes and an anticipated economic recession. The long-dated bond yield slid on a darkened growth outlook, while short-dated bond yield falls slightly, with the 10-year and 2-year treasury yield inverting again. The bond market tells an unavoidable recession on the way.
US 10-year: 2.818%, US 2-year: 2.822%.
Germany bund 10-year:1.17%, UK gilt 10-year: 2.04%.
Australia 10-year: 3.54%, NZ 10-year: 3.62%.
The crypto markets rebounded along with the tech shares’ comeback. The Singapore based Crypto lender Vauld freezes withdrawals since beginning of this week, now is in talk with London-based Nexo for an acquisition deal.
(See below prices at AEST 8:09 am according to Coinmarketcap.com)
Bitcoin: US$20,370 (+2.39%)
Ethereum: US$1,150 (+1.59%)
Cardano: US$0.4598 (-0.53%)