Market Drivers – US Session – Monday 6 June 2022

The market sentiment dramatically changed from optimism during Asian trading session into pessimism during the US session. The early positive mood was on the back of hopes that the global economic situation would start improving after Beijing continued easing coronavirus-linked restrictions.

The sentiment deteriorated after the bell on Wall Street, as investors fear the Fed will maintain its aggressive momentary tightening policy, which will encourage the chances of a potential recession. Friday’s positive NFP data reinforced this speculation.

Safe-haven assets were among the worst performers. Gold is down to trade around $1,841 a troy ounce, while USD/JPY reached a fresh multi-year high of 132.00, now a handful of pips below the level. The USD/CHF pair is up to 0.9705.

US Treasury yields soared, with the yield on the 10-year note yielding as much as 3.04%. The American dollar witnessed a quiet beginning on Monday, but eventually managed to get stronger in the second half of the day, ending the day with gains against major rival currencies.

Crude prices started to weaken after US trade representative Tai’s comments suggested tariff relief was not coming anytime soon. Expectations were growing that the Biden administration might be doing whatever it takes to ease inflation, but a softer stance on China is not happening. Oil rallied towards a three-month high after the Saudis delivered a large price increase to Asian customers for July. Despite the modest weakness with oil today, energy traders anticipate a tight oil market will last for a while.

Economic data

All eyes are focused on inflation ahead of the latest CPI print release this week, as investors look to get the latest gauge on how quickly prices are rising in the US.

Other Developments

Bitcoin is forming a base as prices advanced despite some choppiness in equities. Bitcoin above $30,000 is key for some short-term investors and a move above $33,5000 could trigger some technical buying.

Commodity-linked currencies trimmed early gains and settled around their opening levels, with AUD/USD hovering around 0.7200 and USD/CAD trading around 1.2580.

Crude oil prices edged lower, with WTI now trading at $118.20 a barrel. The EUR/USD pair is sub-1.0700, although action around it was limited by a holiday in Europe. GBP/USD trades around 1.2530 after UK Prime Minister Boris Johnson’s confidence vote. 211 Conservatives voted in favor of Johnson, while 148 said they had lost confidence in the PM.

The Reserve Bank of Australia’s policy decision is awaited as it will announce its monetary policy decision early on Tuesday.

With no US economic data releases scheduled for Tuesday and a quiet Fed due to the blackout period, US equities followed the rally that started in Asia. With the exception of the latest Musk/Twitter drama, it was mostly positive news from corporate America, which translated to a good start for shares of Amazon, Eli Lilly, Spirit Airlines, and Didi Global.

The stock market rally couldn’t hold as Treasury yields are edged higher as expectations grow for a much slower deceleration with pricing pressures. Friday’s inflation report will likely show that inflation is not easing just yet, but that the odds of a recession are still low. Wall Street will need to wait for a couple more inflation reports after this one before anyone can confidently make a call as to when the Fed may alter their tightening course.

US stocks rallied early as improvement with China’s COVID situation, optimism that a strong labor market will help the US consumer handle the latest wave of inflation, and after a wrath of positive news.

Boris Johnson will remain the Conservative leader and UK prime minister. A leadership election will not be needed after 211 Tory MPs voted for Johnson, while 148 MPs voted against, shy of the 180 needed to sack the PM. This rebellion against PM Johnson was larger-than-expected and may have weakened his position on delivering tax cuts. The British pound held onto some of its gains as traders only cared about if this confidence vote would lead to a change in leadership. The path for the pound will still be determined by the pace of tightening by the BOE.

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