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Higher rates send Wall Street lower, Asian markets set to fall

bear markets

US stocks fell for the third consecutive trading day as the Fed’s hawkish stance continued to weigh on sentiment. The New York Fed President John Williams said he would back higher rates until inflation cools. A further climb in the US bond yields sent equity markets lower, with the S&P 500 finishing under 4,000 for the first time since 26 July, suggesting that the Fed-led selloff may take risk assets lower in today’s Asian session.

Wall Street tumbled amid a broad-based selloff, with energy slashing 3.4%

The Dow Jones Industrial Average fell 0.96%, the S&P 500 slid 1.1%, and Nasdaq was down 1.12%.

All the 11 sectors in the S&P 500 finished in red, with energy stocks leading losses, down 3.36%. The material sector was also hit by a drop in resource prices due to a strong dollar, down 1.71%. The mega-cap tech stocks all fell between 1-2%, with Apple down 1.51%, and Meta Platforms falling 1.25%.

The US job openings topped the estimate, reaching 11.2 million in July, indicating strong non-farm payroll data on Friday, which strengthened odds for a 75-bps rate hike by the Fed in September.

Asian markets set to slip, but Chinese stocks may offer support to the region

The futures markets are pointing to a lower open across the APAC region following the weak performance in the US markets.

The S&P/NZX 50 fell 0.1% at the open, but some major stocks showed resilient moves. Meridian Energy jumped 0.5% at the open, Push Pay also rose 0.8%, and Air NZ was up 0.7%. F&P Healthcare, however, slipped 2% at the open. The New Zealand dollar fell against both the US dollar and the Eurodollar but rose against the Aussie dollar overnight as risk-off sentiment sent commodity currencies lower.

ASX 200 futures fell 0.84%, pointing to a lower open. Energy and mining stocks may take a hit by the US session. Also, price falls in commodity markets could weigh on the material sector. The Aussie dollar also slumped amid a drop in resource prices.

The Hang Seng Index futures are down 0.94%. But Chinese stocks are seen resilient moves this week, which could offer support to Asian markets in today’s session. Beijing’s stimulus measures and economic optimism toward the second half may boost the risk sentiment in Chinese equity markets, with most of the Chinese tech shares bouncing off session lows on the Hong Kong stock exchange on Tuesday.

ECB signalled for a 75-bps hike, sending the Eurodollar climbing above the parity level

The ECB official Madis Muller indicated a 75-basis points rate hike in September, sending European government bond yields higher, while the German inflation is expected to hit 7.9% year on year in August, which will be a new high in 40 years.

Despite a rise in the US dollar index, the Eurodollar strengthened against the US dollar on the ECB’s hawkish stance. EUR/USD rose 0.16%, to 1.0017, which is the first time the pair finished above the parity level since 19 August.

Commodity prices fell on a darkened economic outlook, oil slumped 5%

Commodity prices fell on a darkened economic outlook on central banks’ aggressive rate hikes. A strong dollar also pressed on the commodity markets. The WTI futures fell 5.07%, to $92.09, and Brent futures slid 4.5%, to $98.33.

In the meantime, rising bond yields pressured precious metal prices, with the Comex gold futures falling 0.81%, to $1,735 per ounce. Industrial metal, the Comex copper futures slid for the second trading day, down 1.15%, to $3.55 per ounce.

Commodity currencies slumped on price falls in commodity prices

Commodity currencies, including the Australian dollar, New Zealand dollar, and Canadian dollar all fell against the US dollar due to the recession fear-led selloff in the commodity markets. AUD/USD fell 0.70%, to 0.6859, which is the near-term key support level. A bearish breakout of this level could send the pair further down to the previous low at 0.6666, from a technical perspective. USD/CAD was up 0.62%, to 10.3090, and NZD/USD slid 0.43%, to 0.6133.

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