- Dollar traders price in additional rate hikes
- Oil rebounds
- Yields rally
- US initial jobless claims are published on Thursday.
- On Thursday, crude oil inventories are reported.
- FOMC member, Loretta Mester is due to speak on Thursday.
- The MSCI Asia Pacific Index fell 0.1%
- The MSCI Emerging Markets Index fell 0.7%
- The Japanese yen rose 0.5% to 129.31 per dollar
- The offshore yuan rose 0.3% to 6.6969 per dollar
- Brent crude rose 1.8% to $117.71 a barrel
- Spot gold fell 0.3% to $1,832.20 an ounce
Key Events
On Wednesday, a mixed performance by US futures on the Dow Jones, S&P 500, NASDAQ 100, and Russell 2000 illustrated how investors were attempting to price the current US monetary policy outlook as inflation continues to race ahead.
Treasury traders had a more cohesive view as bond selling pushed yields higher.
Global Financial Affairs
Unusually, large cap value stocks are leading today as the gains in contracts on the Dow trade almost 0.3% higher while futures on the NASDAQ and Russell 2000 are trading in negative territory. Interestingly, recent rallies and selloffs have been spearheaded by the technology sector and small caps
In Europe, the STOXX 600 turned lower for the second day. The pan-European index fell yesterday after a record surge in eurozone consumer prices. Early in Wednesday's session, investors were considering the lower valuations favorably and buying the dip. However, that view fizzled as the day went on.
Bond markets in Europe joined the selloff in US Treasuries. Yields on the German 10-year note moved higher.
The rate was blowing out an H&S top which boosted yields in Europe's largest economy to contend with May 6 highs, the most elevated rates since July 2014.
Yields on the UK's 10-year note also moved higher.
Yields there extended the upside breakout of an H&S Continuation pattern, reaching the highest since June 2015.
Earlier in Asia, markets were wobbly, tracking Tuesday's sell-off on Wall Street and ending a month which had been filled with anxiety for investors, including concerns about a possible ongoing recession, due to strict coronavirus lockdowns in China, and even stagflation worries, driven by the more aggressive tone from the US Federal Reserve amid the highest inflation in over forty years while economic growth there is slowing.
Japan's Nikkei 225 closed 0.65% higher, outperforming the region, after the country's parliament approved $21 billion in additional spending to compensate for soaring fuel and food prices due to Russia's invasion of Ukraine.
Hong Kong's Hang Seng closed 0.6% lower on profit-taking after a three-day run added 6.5%. Even after the lower close, the price remained above the May highs.
Yesterday was the last day of a volatile month for US markets which ended the period almost flat. However, drilling deeper, the Energy sector posted an entirely different result, ending the month up 16%. This was almost four times as much as the second-best performing S&P sector, Utilities, which advanced 4.3% over the month.
In complete contrast to German and UK bonds, US Treasuries are showing signs of topping out, at least in the short term.
Yields on the 10-year note produced a Doji, a possible part of an Evening Star, which would complete the right shoulder of an H&S top. Falling yields typically indicate that investors are rotating out of risk and into safe havens.
The dollar climbed for the third straight day on ongoing bets of US interest rate hike expectations.
However, the strength of the dollar weighed on gold prices, pushing them lower for the second day.
The price decline was testing the bottom of a possible Falling Flag, bullish with an upside breakout, after bouncing off the uptrend line since March 2021 low. The fact that the flag runs through the 200 DMA underscores the price level as technically significant.
Bitcoin was little changed for the second day in a row.
Three days ago, the cryptocurrency leader broke the topside of a Pennant, as bulls fight to end a significant trend lower.
Oil returned to a rally as the coronavirus lockdown in Shanghai was lifted. WTI also benefitted from the decision by the European Union to ban 90% of Russian imports. However, yesterday, the price gave up some gains on news that OPEC is considering to exclude Russia from its output agreement.
Crude bounced off the support of a bottom after completing a Symmetrical Triangle. However, it needs to break free of a Rising Channel in place since early April to reduce the risk of a pullback which will allow crude prices to continue higher along with the recent, steeper Rising Channel.