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Daily Wrap Up 03 May 2022

3 May 2022 04:37 PM

Stocks mixed, Aussie outperforms

Equity markets are mixed following yesterday’s volatile session, which saw a flash crash in European markets, and US equities underwent a bullish turnaround. The FTSE 100 is essentially flat while the DAX and the CAC are up on the day – the eurozone indices are rebounding from the sharp and sudden moves lower that seen yesterday. The S&P 500 is showing a small gain, but the NASDAQ 100 is lower as fears about higher rates continue to hang over the tech sector.

The Australian dollar is higher across the board as the Reserve Bank of Australia hiked rates by 0.25%, it was the first hike since 2009.  In November, the RBA signalled the first rate-hike might not be until 2024, so this goes to show how much things have changed in the past six months. Australia, like other countries is dealing with high inflation, which hit 5.1% - its highest mark in 20 years. This hike comes at a time when the Chinese economy is cooling. Australia is dependant on China for trade, so higher domestic interest rates, plus a slowing Chinese economy does not bode well for Australia.

The US dollar has retreated from its recent multi-year peak as some traders are booking profits ahead of tomorrow’s closely watched Fed meeting. In recent weeks, there has been growing speculation the Fed will lift rates by 50 basis points tomorrow, and that is why the dollar set multi-year highs versus several currencies last week, most notably, it set a 20-year high against the Japanese yen. The dollar posted a five-year high versus the euro. Even though the dollar has dipped today, it is still in in its wider uptrend.  The JOLTS report showed there were 11.55 job openings posted in March, a new record high. This update speaks to a robust US labour market, but at the same time, it could be interpreted that employers might need to offer more money to secure workers. CPI is already at a 40-year high in the US, so if wages keep rising, that should add to inflationary pressures.

Gold has undergone a U-turn today thanks to the slide in the US dollar. Earlier on, the metal fell to a fresh 10-week low, but since then it has rebounded. Tomorrow’s Fed meeting is hanging over the metal. It is possible that some of the recent upward move is due to short covering as traders want to square up their positions ahead of the interest rate decision.

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