Daily Wrap Up 07 September 2022

7 Sep 2022 05:20 PM

US stocks rise as yields cools, oil suffers

Equity markets saw a lot of volatility today as the latest trade data from China added to worries about the health of the global economy. Imports and exports were 0.3% and 7.1% respectively, both showed slower growth rates and the readings missed estimates. China is the workshop of the world, so if Chinese exports are growing at a much slower pace, that implies that worldwide demand is dwindling. Eurozone stocks closed higher in the end, despite being lower earlier. Large declines seen on UK banking and oil stocks hurt the FTSE 100. This morning, Dow Jones futures fell to their lowest level in seven weeks, but US stocks are now showing solid gains as the US 10-year yield has dropped back below the 3.30% mark. It seems as if the dip in yields has pushed up equities.

The US Beige Book will be posted later and that could provide clues about the Fed’s next move. Earlier this month, the US jobs report was reasonably well received, and at the Jackson Hole Symposium, Jerome Powell indicated the Fed will press ahead with its plans to keep lifting rates, even if it inflicts pain on the economy. A short while ago, Loretta Mester, Fed member, said she is not convinced that inflation has peaked, and if that is the case, we could see more hawkish rhetoric from the Fed.

Worries about the UK economy continue to mount as Liz Truss recently took over as Prime Minister. Fears about a cost-of-living crisis and rising inflation as well as doubts about Truss’ ability to steer the economy in the right direction are all weighing on the pound. GBP/USD fell to its lowest market since 1985 – this highlights the lack of confidence in the British economy. Keep in mind, the Bank of England hiked interest rates six time since December last year, and all those hikes still cannot stop the decline in sterling. The Bank of Canada lifted rates by 0.75%, meeting forecasts. In addition to that, the BoC suggested that more rate hikes are on the agenda.

Gold is enjoying a bullish run as the reversal in the US dollar and the slide in government bond yields is helping the commodity. Brent crude oil and WTI are tanking as trade data from China is weighing on the energy market.

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