Daily Wrap Up 07 July 2022

7 Jul 2022 04:40 PM

Sterling rides BoJo bounce

Yesterday evening, the Federal Reserve released the minutes from last months meeting. Even though the bank cautioned that a more restrictive policy might be introduced if inflation continues to run high, central bankers anticipate that growth will improve in the second quarter. Considering the Fed hiked rates by 75 basis points in June, traders are half expecting another 0.75% lift this month. The minutes were hawkish, but not any more hawkish than the previous update, and that has boosted stocks in the US and Europe. The US 10-year yield has ticked up to a one-week high of 2.97%, so the bond market is factoring-in further rate hikes. It will be interesting to see how the NASDAQ 100 and the S&P 500 fair should the yield cross 3%. That level has a track record of being influential on US equities.

The British pound rallied today on the news that Prime Minister Johnson will resign. Mr Johnson’s premiership suffered a series of knocks recently, and that sparked a flurry of resignations from cabinet members – which hurt the pound. Now that Boris Johnson has declared his intention to step aside, sterling has rebounded as a certain amount of political uncertainty has been put to bed. The Conservative party will begin the search for a Prime Minister but that is another day’s matter.

There appears to be some disconnect between the US dollar and the 10-year yield, as the greenback has retreated while the yield is gaining ground. The dollar jumped to a new 20-year high yesterday, so it is possible that profit taking is behind the move. Gold and silver are benefitting from the slide in the dollar. Overnight, the Chinese government announced it is mulling a fresh $220 billion stimulus package in an effort to boost economic activity. The country is a major importer of commodities, so the news is helping WTI, Brent crude, copper, platinum, and palladium.

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