DAILY MARKET ANALYSIS 22-06-2022

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The dollar is capitalizing on safe-haven flows early Wednesday and gathering strength against its major rivals. Investors grow increasingly concerned over a global recession as major central banks remain on track to continue to tighten their policies to battle inflation. FOMC Chairman Jerome Powell will testify before the US Senate Banking Committee in the hearing titled "The Semi-annual Monetary Policy Report to the Congress." Meanwhile, central bankers keep hinting at aggressive measures. Bank of England Chief Economist Huw Pill said they would certainly be ready to act if they see evidence of persistent price pressures. Reserve Bank of Australia Governor Philip Lowe opened the door for a 50 bps rate hike in July. Finally, European Central Bank Governing Council member Olli Rehn said it is very likely that the September rate hike would be bigger than the 25-bps planned for July. Elsewhere, tensions are high between Russia and Lithuania after the latter, a NATO member, banned the rail transfer of all EU sanctioned goods (such as metals, coal, construction materials and high-technology products) coming from mainland Russia to Kaliningrad, a Russian exclave on the Baltic Sea.

Stocks

US stock futures drifted lower in Asian trade on Wednesday after the major averages rallied overnight, with equities recouping some losses following weeks of heavy selling. In regular trading on Tuesday, the Dow gained 2.15%, the S&P 500 jumped 2.45% and the Nasdaq Composite rallied 2.51%.

European stock markets sold off Wednesday, with the week’s rally fizzling out after soaring U.K. inflation added to persistent concerns about aggressive monetary policy tightening and slowing growth. DAX in Germany traded 2.1% lower, the CAC 40 in France fell 1.8%, and the UK’s FTSE 100 dropped 1.2%. The pan-European Stoxx 600 dropped 1.7% in early trade, with basic resources sliding 4% to lead losses as all sectors and major bourses fell into negative territory.

Asia-Pacific stocks were down on Wednesday morning as warnings about an economic downturn were getting louder despite a jump in U.S. equities. Japan’s Nikkei 225 inched up 0.01% while Hong Kong’s Hang Seng was down 0.55%. China’s Shanghai Composite inched down 0.09% while the Shenzhen Component edged down 0.17%.

Currencies

• The index added to Tuesday’s small gains and advanced decisively towards the 105.00 area despite US yields edging lower during the European morning. The bid tone surrounding the buck follows investors’ expectations ahead of Powell’s Semi-annual Monetary Policy Report before the US Senate, where the Fed’s next steps regarding its normalization process are expected to take centre stage.

• EUR/USD has staged a rebound in the European session and managed to erase its daily losses. The pair holds above 1.0500 as investors wait for FOMC Chairman Jerome Powell to testify. The common currency was last seen hovering around the 1.0519 area.

• The GBP/USD pair refreshed its weekly low during the early part of the European session, albeit managing to find some support ahead of mid-1.2100s and recovering a few pips thereafter. The pair was last seen trading around the 1.2230-1.2250 region, still down nearly 0.40% for the day.

• The AUD/USD pair came under some renewed selling pressure on Wednesday and dropped to a fresh weekly low, around the 0.6880-0.6990 region during the early European session. The downfall comes on the back of repeated failures ahead of the 0.7000 psychological mark over the past two trading days and favours bearish traders amid the emergence of fresh US dollar buying.

• JPY was last drifting 0.3% lower at 136.3 per dollar, having hit 136.71 in early trade, its lowest since October 1998. The currency has been weakening as higher energy prices put pressure on Japan's current account and because of the ever- widening gap between yields on Japanese government bonds and U.S. Treasuries.

Bonds

The 10-year US Treasury note yield tumbled below the 3.3% level as investors rushed into safe-haven assets on concerns that an aggressive tightening from central banks could tip economies into a recession. The yield on the German 10-year Bund decreased to below 1.7%, having touched an 8-1/2-year high of 1.926% on June 16th, as investors sought shelter in government bonds during a sell-off in stock markets.

Commodities

Gold has regained its traction after witnessing some selling for the fourth successive day on Wednesday and dropped to a four-day low, around the $1,823 region during the first half of the European session. The precious metal was last seen trading around $1.830 per ounce.

Oil prices tumbled on Wednesday amid a push by U.S. President Joe Biden to cut taxes on fuel to cut costs for drivers amid aggravated relations between the White House and the U.S. oil industry. Brent crude was down $4.76 at $109.89 a barrel while U.S. West Texas Intermediate (WTI) fell $5.11 to $104.34.

Up Ahead –Thursday 23-06-2022

• EUR German Flash Manufacturing PMI

• GBP Flash Manufacturing PMI

• USD Unemployment Claims

• USD Fed Chair Powell Testifies

*The information presented above is intended for informative and educational purposes, should not be considered as investment advice, or an offer or solicitation for a transaction in any financial instrument and thus should not be treated as such. Past performance is not a reliable indicator of future results.