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Daily Wrap Up 22 April 2022

22 Apr 2022 04:45 PM

Hawkish Powell hammers stocks

Stock markets are in the red because of the hawkish comments made by Fed Chair Jerome Powell last night, the central banker stressed the need to tackle rising inflation by hiking interest rates. Mr Powell strongly suggested that rates will be lifted by 50 basis points next month. In recent weeks, there has been growing chatter the Fed might look to ramp up the rate it will tightening its policy, and the update from Jerome Powell made it very clear that will happen. Good communication skills in this situation are crucial, and Mr Powell gave a very clear signal there will be a 0.5% hike next month. To a certain extent, it wasn’t a total surprise, but it cleared up any doubt that some people might have had. As a result, European equity markets are nursing heavy losses, the DAX is down over 2%, while the FTSE 100 is holding up relatively well as it is only lower by 1.1%. In the US, the mood is still bearish as the Dow Jones and the S&P 500 are off by 1.4% and 1.2% respectively. The US 10-year yield is 2.9%, which is not a million miles from 3%. Keep in mind, the dividend yield of the S&P 500 is approximately, 4.3%, Should bond yields keep rising at the current aggressive pace, some investors might look to trim their exposure to equities in light of the yields differential.   

The US dollar index has hit a new two-year high as the speculation of higher rates continues to grow. EUR/USD is trading below the 1.0800 mark, and it is not too far away from the 23-month low that was printed last week. Should the bearish trend continue, it might target 1.0700. Metals are being hit hard by the firmer US dollar, which is a double whammy for AUD/USD – the currency pair has lost over 1.5% today. A combination of weaker copper prices and a higher US dollar has hammered AUD/USD.

It has been a tough week for gold because the risk-on mood in the markets a few days ago put pressure on the commodity. In the past 24 hours, things have gone from bad to worse due to the rally in the greenback. At one point, gold traded close to $1,925 – its lowest mark in over one week. Silver is in the same boat.

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