Both Nasdaq and the S&P 500 snapped a three-day losing streak as the US tech stocks resumed their bull run, while the Dow Jones Industrial Index fell slightly due to a decline in energy and financial stocks. The US bond yields jumped following the Fed Chair’s reiteration for more rate hikes. And the Bank of England’s surprisingly raised the interest rate by 50 basis points to 5%, the highest level in 15 years after the country reported stubbornly high inflation. The Swiss National Bank also raised the benchmark rate by 25 basis points and signals further tightening to come.
Nonetheless, the Fed is near the end of a rate hike cycle, though it may hold the interest rate at such a high level for an extended period. The CBOE Volatility Index fell to under 13, the lowest since January 2020, making it very cheap for hedging equities pullback risks. Or this may be a sign that a stock market’s correction could be close.
In FX, the US dollar strengthened due to a hawkish Fed. And divergence of monetary policies between the Western and Asian economies offered significant moves in some currency pairs, such as GBP/JPY, GBP/CNH, and CHF/JPY. In commodities, the strong USD and BOE rate hike slashed oil and gold prices again.
Asian equity markets remained sluggish amid China’s economic uncertainties and a hawkish Fed. The exception is still the Japanese market, hovering around all-time highs. Chinese EV marker’s share also showed resilient moves despite a broad selloff. Futures markets point to a mixed open across Asia. ASX 200 futures were down 0.10%, Nikkei 225 was up 0.80%, and the Hong Kong Stock Exchange closed for a two-day public holiday.
Price movers:
- 5 out of 11 sectors in the S&P 500 finished higher, with growth sectors, including consumer discretionary, technology, and communication services, leading gains, up 1.53%, 1.15%, and 0.92%, respectively. Real estate and energy were the worst performers, both down more than 1%, due to a jump in rates.
- Indian Prime Minister Narendra Modi met with Tesla CEO Elon Musk, paving the way for more investment in the country. Indian stock market saw funds inflow, with the Nifty 50 up 11% from its low in March, reaching an all-time high level.
- USD/TRY soared 5.6% to a fresh high after Turkey’s central bank hiked the interest rate to 15% from 8.5% to tame hyperinflation. The 650 basis points rate hike is the first time since March 2021, but well below the 1,150 basis points expected. Turkey’s inflation printed at 40% in May 2023.
- Crude oil futures tumbled, with the WTI falling below US$70 again as the global economic outlook got gloomier with central banks’ tightening measures, while China encountered an economic slowdown.
- Gold fell to the lowest level since mid-March due to rising rates. The precious metal fell below the recent support of around 1,920, heading a further potential support of 1 900.
ASX and NZX announcements/news:
- No Major announcement.
Today’s agenda:
- Australian flash manufacturing and service PMI.
- Japan’s National Core CPI for May y/y
