Dollar dives, equities tumble
The brutal sell-off in US stocks last night ensured European markets got off to a very tough start this morning. Sentiment was brutal as worries about rising inflation and speculation that more rate hikes are on the way dominated the headlines. Last night, the Dow Jones shed 1,100 points – its worst daily loss in two years and that set the tone in Europe. US equities are in the red again, but they are off the lows of the session, so that has given a little comfort to dealers in this part of the world. As we approach the close of business, the FTSE 100 is down over 2% and the DAX is off 1.1%, but both indices were posting larger losses a few hours ago. It is interesting that both the NASDAQ 100 and the S&P 500 have held above last week’s lows, so perhaps a floor is forming in US markets.
The retreat in the US 10-year yield has put pressure on the US dollar. EUR/USD, AUD/USD and GBP/USD are showing solid gains. The Japanese yen is in high demand due to the sharp declines seen in stocks, so today it’s a double whammy for USD/JPY. Today’s US economic data was disappointing, so that kept pressure on the greenback. The US Philly Fed manufacturing index dropped from 17.6 to 2.6, its lowest mark in two years. The jobless claims reading increased to 218,000, a 10-week high. In the past few weeks, we have seen some signs the US economy is moving down a gear. This comes at a time when the Federal Reserve seems on track to carry out further rate hikes, which is likely to compound the issue.
Gold is glowing as a combination of a risk-off sentiment in equity markets and the heavy losses in the US dollar are boosting demand. Earlier this week, gold slumped to its lowest mark since late January as the uptrend in the greenback dented the asset, but now we are seeing a bounce back. Industrial metals such as copper and platinum are also enjoying rallies.