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Daily Wrap Up 06 May 2022

6 May 2022 04:31 PM

Stocks tumble again as fears linger

European stock markets are deep in the red as the brutal sell-off seen on Wall Street last night has set the tone for today. On Wednesday, the Federal Reserve hiked interest rates by 0.5%, and even though there was a rally immediately after the news, there was a delayed realisation that borrowing costs will rise. Also, even though the Fed might not look to lift rates by 0.5% in the near-future, hikes of 0.25% in the months ahead are on the cards. Inflation is at a 40-year high, and that is eating into people’s disposable income, so an increase in the cost of borrowing is likely to compound the issue. By and large, the technology sector has a high level of debt, and therefore it has the most to lose in an environment of higher rates, hence why the NASDAQ 100 was clobbered last night, and it is down again today.

A few hours ago, the latest US non-farm payrolls report was posted, and it was a pretty good update. It showed that 428,000 jobs were added last month, which was ahead of the 390,000 forecast. The previous reading was revised from 431,000 to 428,000 so today’s figure was unchanged on the month. Economists were anticipating the unemployment rate to dip to 3.5% but it held steady at 3.6%. Considering it has been a volatile few days in the markets, there was a subdued response to the numbers. It is unlikely today’s data will not influence Fed policy one way or another as it the report was middle-of-the road.

The US dollar has slipped in the wake of the jobs report despite the fact the 10-year yield has tricked higher, it is above 3.1%. A strong performance from the euro across the board seems to be why the greenback is suffering. In the past couple of days there has been growing speculation the European Central Bank might hike rates in July. Inflation in the currency bloc is at a record high and the relatively weak euro will make matters worse due to imported inflation. Central banks sometimes like to move in tandem with each other, so the ECB could hike as a way of not falling too far behind the BoE or the Fed. Gold is a little higher thanks to the dip in the US dollar and the risk-off mood in stocks. The small upward move in the metal speaks to mediocre buying appetite.

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