US stocks continued to be under pressure ahead of Friday’s job data after Fed Chair Powell’s hawkish reiteration on rate hikes, with tech sectors dragging on performances. The US 2-year bond yields surged to 5.13% before coming off to 4.71 and the US dollar strengthened further, with the dollar index rising to a two-week high of 112.84. However, the fear gauge, the CBOE VIX fell to 25.17 at a relatively low level, suggesting that investors may not be so concerned about the current bear markets. The Bank of England raised the interest rate by 75 basis points for the first time in 33 years, but the bank warned of the longest recession that the country may face, with a projection that the UK GDP may decline 0.75% for the second half of 2022. Central banks seem to have all reached their peak of hawkishness, despite the Fed’s insistence on higher rates. But remember that the Fed swiftly changed to hawkish from its dovish stance in October 2021, which was also unexpected. Have the bond yields been overpriced?Click to enlarge the table
- Dow has been outperforming the S&P 500 and Nasdaq since October due to the outperformance in energy and industrial stocks. 6 out of the 11 sectors in the S&P 500 finished lower, with Communication Services leading losses, down 2.83% and 3%, respectively. Energy again outperformed all the other sectors, up 2%. Industrial and Materials were also performed strongly. Mega Cap techs continued to slide, with both Apple and Alphabet down more than 4%. Amazon’s shares were down 3% to a fresh 52-week low. The company is pausing new hires for its corporate workforce.
- The British Pound tumbled on the BOE’s recession warning, with GBP/USD down 2%, to 1.1158 at AEST 7:50 am. The bank expected the peak rates will be lower than previously projected to around 4.6%.
- Chinese stocks fell after a two-day rally as speculation for a Covid-Zero exit faded. The Hang Seng Index fell 3% on Thursday but the index futures bounced off the session low and finished higher, pointing to a higher open. The Chinese Yuan has also stabilized above the recent low, with USD/CNY at 7.30.
- Asian markets are facing a mixed open as Chinese shares are set to jump. ASX futures slipped 0.35%, Nikkei 225 futures slid 1.16% and Hang Seng Index futures were up 1.49%.
- Crude oil slumped 2% on concerns about weakened demands in China, and mounting recession fears on Fed’s hawkish reiteration. The recent Covid outbreaks in China led to renewed lockdowns in parts of the country, which continued to hurt the growth outlook.
- Gold bounced off a session low, finding technical support around 1614. The precious metal has been moving in a tight range between 1,680 and 1,614 as the strong US dollar and rising rates weighed.
- Cryptocurrencies were resilient despite a broad selloff in risk assets, suggesting traders may continue accumulative trades. Bitcoin consolidated above 20,200, while Ethereum anchored above 1,500.