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Daily Wrap Up 06 July 2022

6 Jul 2022 04:37 PM

Lower yields help Europe rebound

A dip in government bond yields has paved the way for bargain hunters to swoop in and snap up European equities. Yesterday, the DAX plunged to a four-month low amid fears the largest economy in the eurozone is heading for a recession, but today those concerns have subsided, and indices are on track to finish the session higher. It appears the slide in government yields is supporting stocks. Even though equity markets are higher, the gains seen today are a fraction of the losses that were registered yesterday so that suggests there are lingering concerns about the health of the region.

The mood is cautious on Wall Street as the S&P 500 has slipped into the red. The US 10-year yield has cooled in recent weeks. It is currently 2.87%, but keep in mind it jumped to an 11-year high of 3.48% three weeks ago when the Federal Reserve hiked interest rates by 75 basis points. The minutes from that meeting will be posted this evening and traders will be paying close attention to the update as there is speculation the Fed might look to do another 0.75% lift this month.

The latest US ISM non-manufacturing report was mediocre as the headline figure was 55.3, fractionally down from the 55.9 in May. It was a 15-month low. The finer details of the report highlight the issues facing the US economy as the employment metric fell from 50.2 to 47.4 – denoting negative growth. New orders slipped to 55.6, while prices paid nudged lower to 80.1, from 82.1. The fact that prices remain very high while new orders are only growing at a moderate level speaks volumes about the state of the US economy. Despite issues facing the US, the dollar is powering ahead, and it has set a new 20-year high.

Sterling is largely lower this afternoon as there is mounting pressure on Prime Minister Johnson to call an end to his premiership. A string of high-profile cabinet resignations has promoted growing calls for him to exit 10 Downing Street. This political uncertainty comes at a time when the UK is going through fiscal pain as the economy contracted in March and April, and CPI hit a 40-year high, so this is dreadful timing for the pound.

Commodities are under pressure again as the burst higher in the greenback is hurting the assets. A few hours ago, metals and oils recouped some of the ground they lost yesterday, but they have since swung into the red. Gold is -0.7% and WTI has lost over 3.5%.

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