US stocks extended gains from a three-week winning streak amid ongoing earnings optimism and the Fed policy bets. Investors braced for China's surprisingly weak economic data and continued to pile into tech shares while picking up the big retailer stocks, such as Walmart and Target, ahead of major earnings.
US dollar gathered strength again after China reported weaker-than-expected economic data on Monday, which pressured commodity prices, with both oil and copper futures down 4.3% and 1.8% respectively, as a slowdown in the growth of the world-second-largest economy sparked demand concerns over fuel and resources. Gold also slid amid a strong USD.
However, an unexpected interest rate cut by the POBC reversed early losses in Chinese stocks, with most of the mainland indices finishing higher.
Asian markets are set to gather gains following a positive US close and PBOC’s rate cuts
Most Asian equity futures are pointing to higher opens in the APAC region. With government bond yields falling in both US and China, “peak Fed” bets and accommodative Chinese policy may continue to push broad equities higher. The PBOC has cut interest rates by 10 basis points for both the Medium-term lending facility (MLF) and open markets reverse repo after a slew of Chinese July economic data, including industrial output, retail sales, and fixed asset investments, all printed shortfalls from the prior month.
The S&P/ASX 200 futures are up 0.32, indicating a positive start to today’s session. The RBA meeting minutes will be released at 11:30 am AEST today, which will provide clues for the further rate hike path. BHP delivered a strong FY22 result with a record underlying earnings of US $40.6 billion and record free cash flow of US $24.23 billion. The full year dividends also hit a record of US$3.25per share.
The S&P/NZX 50 rose 0.38% in the first hour of trading. Air New Zealand and renewable energy stocks led broad gains. The Air share was up 0.72%, to NZ$0.69 and Meridian Energy’s shares rose 0.47%, to NZ$5.28, the highest seen in March. The RBNZ’s rate decision on Wednesday will be a spotlight for the local markets.
Not a bear market rally anymore on Wall Street
The strong bullish momentum on Wall Street suggests that the rally may not be “a bear market rally” anymore, with S&P 500 inches away from pivot resistance of 4,300. A bullish breakout of this level could conclude "a bulls rally" for the second half of the year.
The Dow Jones Industrial Average was up 0.45%, S&P 500 rose 0.4%, and Nasdaq advanced 0.62%.
9 out of 11 sectors in the S&P 500 finished higher, with consumer staples and growth sectors leading gains. Most mega-cap companies’ shares were up as bond yields slipped on "Peak Fed" bets. Tesla rose 3% to nearly a three-month high ahead of its 3-for-1 stock split on 24 August.
Despite broad optimism, the energy and material sectors have unperformed due to weak Chinese economic data.
On the economic front, the New York manufacturing index fell to -31.3, the lowest since May 2020, reflecting weakened factory activities caused by softened consumer demands due to inflationary pressure.
The major companies’ performance overnight (16 August 2022)
Source: CMC Markets NG
US dollar firmed as Chinese data sparks demand concerns
The US dollar index rose 0.85%, to 106.405 after China reported disappointing economic data, which sent all the commodity currencies lower amid tepid demand outlooks. AUD/USD, NZD/USD and CAD/USD all fell more than 1%. The Eurodollar dropped nearly 1% against the greenback, to 1.0163 this morning.
Commodities were slashed by demand concerns, dollar’s strength
The looming fears of global demand destruction over commodities slash both industrial metal and crude oil prices. A plunge in US manufacturing index also added to the concerns. Both WTI crude and brent prices dropped more than 4%, to $88. 42 and $ 93.29, the lowest seen in Feb.
Gold futures fell 1.2%, to the key support near $1,780 per ounce due to a strong US dollar. Silver was also down more than 2%, to $20.23. And copper futures slid 1.8%, to $3.60 per ounce.
Bond yields were lower as expectation for “Peak Fed” strengthened
The US bond yields slid as weak economic data strengthened odds for the Fed to slow down in rate hikes from September. The 10-year US Treasury yield fell to 2.793%, and the yield on the 2-year note was down to 3.195%.
The Australia 10-year government bond yield fell to 3.25%, and the yield on the 10-year New Zealand peer slid to 3.38%.
Ethereum pulled back from the 100-day MA
The leading cryptocurrencies retreated after both bitcoin and Ethereum hit day highs. Ethereum pulled back from the key resistance of 2,000 at the 100-day moving average, down 2% from the last 24 hours, while bitcoin slid 1.2% to just above 24,000 from the day high at 25,000.