Daily Wrap Up 05 October 2022

5 Oct 2022 05:00 PM

US dollar dominates, stocks slump

Stocks have fallen out of favour with investors due to the rise in bond yields. The US 10-year yield is now 3.77%, which is a major rebound because earlier this week it was 3.6%. There is less chatter about a potential “pivot” from the Federal Reserve and as a result, yields are up, and equities are down. It is fair to say that profit taking is playing a role in equities sell off too as the indices saw major rallies in the previous two sessions. The latest ADP employment report from the US showed that 208,000 jobs were added, it was slightly ahead of expectations, and it was the highest reading in three months. It was deemed to be a pretty good report, and therefore one could argue the Fed do not need to pause their hiking cycle.

The US dollar is powering ahead as the rise in yields is dragging up the currency. The greenback was given a boost by the jobs report. Lately, the US dollar has acted as a popular safe haven play and that is what we are seeing today. The dollar is exerting its dominance on the currency markets once again as GBP/USD and EUR/USD are down by 1.9% and 1.3% respectively. The New Zealand dollar is largely higher as the RBNZ lifted rates by 50-basis points, meeting expectations. Silver is suffering greatly due to the sharp rally in the US dollar and gold is down too.

OPEC+ announced it will cut production by 2 million barrels per day. Oil was already rallying into the announcement as there was speculation a big cut would be delivered. Some energy analysts were pencilling in a cut up to one million barrels, so the actual reading was far bigger than expected. WTI is up 1.5%, which is a sizeable rally when you consider the wider downbeat mood. The EIA report showed US oil and gasoline inventories fell by 1.4 million barrels and 4.7 million barrels respectively, and that speaks to high demand. The data is also fuelling the jump in the energy market.

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