US stocks extended losses but bounced off session lows on Monday, suggesting that risk appetite somehow recovered from the Fed-induced selloff last Friday.
Energy stocks regained steam on Wall Street, the dollar weakened, and oil jumped
Dow Jones Industrial Average was down 0.57%, the S&P 500 fell 0.66%, and Nasdaq slid 1.02%. 9 out of the 11 sectors in the S&P 500 closed in red, with technology leading losses. Energy stocks outperformed, up 0.54%. Utilities rose 0.25%.
While bond yields moved higher, the US dollar index retreated from the 20-year high level. The crude oil jumped 4% as undersupply again became a focus after the OPEC+ signaled for a production cut. Should the oil prices fly again, inflation woes may come back, which will not help bets for a “Fed pivot”. A 75-bps rate hike by the Fed in September looks more promising now, with the CME Group Fed Watch Tool pricing for a 75% chance. Market participants may start digesting the news beforehand, which could cause “sell the rumor, buy the fact” trades on the decision day.
Asian markets set to open higher
Despite weak performances across the APAC region following Friday’s selloff on Wall Street last, most Asian markets are set to open higher as investors were digesting the Fed policy risks.
Chinese stocks were more resilient, led by property stocks due to stimulus measures taken by Beijing. In addition, the Chinese electric car maker, BYD reported strong H1FY22 results with a net profit of 3.6 billion yuan, up 300% annually, which also supported risk sentiment.
A2 milk’s strong earnings offset some losses in the S&P/NZX 50, but the local equities were still badly hit by broad risk-off sentiment on Monday. With a slowdown in the selloff on Wall Street, the NZ markets are expected to recover some losses today. The NZD/USD jumped off the day low of 0.61, trading at 0.6155 this morning. Kiwi Property’s shares jumped 0.5% at the open on an announcement to start off paying dividends.
ASX 200 futures are up 0.26%, pointing to a higher open. The disappointing Fortescue earnings dragged on the mining stocks on Monday, suggesting a weakened demand in China negatively affected the sector. But Beijing’s stimulus measures towards its infrastructure may boost demand in the second half. In today’s session, the energy and defensive sectors are to perform strongly by following the US markets. The Aussie dollar also sharply rebounded against the USD in the overnight session. Harvey Norman and Woodside are to report earnings.
The FX markets were mixed, Japanese Yen weakened further
A pause in the surge of the US dollar pushed up most of the other major currencies but JPY and GBP. EUR/USD rebounded back to the parity level after falling to a session low of just above 0.99. From a technical perspective, the pair may head for its next potential resistance towards 1.01 However, USD/JPY jumped for the second day, approaching key resistance at 139. 30, which is high on 14 July. The British pound also weakened against the greenback, down 0.3%, to 1.1710, which is probably due to the thin liquidity on a public holiday.
Resilient moves in cryptocurrencies
Both Bitcoin and Ethereum rebounded from day lows, though both leading digital coins are still at the lowest levels in one month. Ethereum rose 4.9% and Bitcoin was up 1.33% in the last 24 hours. Ethereum has been outperforming bitcoin since early July, which may be supported by the news that a major protocol change is in progress for the blockchain.