The markets did a big U-turn after Wednesday’s post-FOMC rally, and the pop in rates hammered Wall Street. Along with positioning, the recent massive swings in the markets and mostly bearish tones have been fostered by escalating fears over inflation, an overly aggressive tightening path from the Fed, and increasing angst over slowing growth, in other words, “stagflation.” That potential was imbedded in the Q1 productivity report that revealed near record contraction in productivity as well as unit labour costs, leaving a hollow ring to Chair Powell’s beliefs that the Fed can tame inflation and that the economy can achieve a “softish” landing with a “significant chance” of avoiding a “significant slowdown, or a big jump in unemployment.”
RBA flags further tightening ahead. The RBA said in its quarterly monetary policy report that it will need to raise interest rates further, against the background of tightening labour markets that risk triggering a wage price spiral.
USDIndex at a 5th winning week – breached 103.95. Currently at 103.84 ahead of US jobs report that is likely to back the case for aggressive monetary policy tightening.
Equities – was crushed by the revived hawkish outlook and the pop in yields. The USA100 dove over -5% but finished with a -4.99% decline. The USA500 tumbled -3.56%, with the USA30 -3.12% lower.
Yields 10-year up 17 bps to 3.105%, with the 2-year up 10 bps to 2.738%.
Oil climbed to 111.36 high, after the Biden administration outlined a plan to refill oil reserves (SPR). But it has dropped right back down to 109.34. Reportedly, the Department of Energy will put out a tender for 60 mln barrels in the fall, according to an unnamed source. But the purchases will be at some time in the future, which saw the price fall back. Having the government an assured buyer should provide some support. Meanwhile, the looming EU ban on Russian oil imports and the less hawkish than feared FOMC result have helped calm fears. There were no surprises from OPEC which stuck to its plan for a modest hike in output.
Gold drifted back to 1866 as the USD and Treasury yields rallied.
Bitcoin tumbled 8% overnight, hitting at 35,278.
FX markets – EURUSD at 1.0508, USDJPY holds above the 130.50, Cable down to 1.2333. AUD turns below 0.7100.
Biggest FX Mover @ (06:30 GMT) GBPCHF (-0.73%) declined in the EU open at 1.2157, with next support to 1.2114. MAs & Stochastics bearishly crossed, and RSI is at 36 sloping lower. H1 ATR 0.00169, Daily ATR 0.01081.
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