Daily Wrap Up 27 September 2022

27 Sep 2022 05:25 PM

Stocks edge lower as yields see renewed gains  

Traders were in risk-on mode for much of the European session as the fears that have been hanging over markets recently faded a little. There was a dip in government bond yields and that acted as a greenlight for the equity market bulls, but in the past few hours, yields swung back into positive territory and that weighed on stocks. The DAX closed lower but it is still off the two-year low that it posted yesterday. In early trading, the US stocks were showing respectable gains but the rally in yields caught up with sentiment and now the Dow Jones is only up 0.15%.

The British pound is rallying following the brutal sell off it endured yesterday. The Bank of England said they are willing to keep hiking interest rates as a way of supporting sterling. There is a sense in the markets the BoE will do whatever is takes to defend the pound, reminiscent of the Mario Draghi speech in 2012, but on the other hand, the BoE knows all too well you can’t buck the markets. For now, worries around sterling have faded. The pound is off its recent lows, but it is still down a lot compared with one week ago, so sentiment is still fragile. Lately, the US dollar has risen partially because of the overall risk-off mood in the markets. Fears about slowing growth and high inflation have eaten away at market sentiment, and that hit stock markets, and traders poured funds into the US dollar. Earlier today, the US dollar was under pressure as dealers booked their profits, but it is now up slightly on the session.

Industrial metals like platinum copper, and silver are all higher. These markets are typically driven by perceptions about demand and the lighter mood has seen buyers’ step into the fold. Gold is in positive territory as the earlier retreat in the US dollar has made the metal more attractive. WTI and Brent crude are powering ahead due to worries about supply as a hurricane warning in the Gulf of Mexico has prompted oil firms to recall staff from operations. There is speculation that OPEC+ will look to curtail output to support the energy market.

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