Spreadex Market Update
Global Recession Fears Drive Dollar to 20-Year Highs – FOMC Minutes Next
The US Dollar hit its highest level in 20 years yesterday as global recessionary fears drove a sell-off in risk assets and a rotation into the US Dollar as a safe-haven. The inverting of the yield curve on 2- and 10-year US treasuries (third time this year) was the latest signal that a major downturn is likely coming in the US.
Despite these concerns, Fed tightening expectations are currently withstanding fears of a downturn with the rates market having only shaved around 6bps of its year-end rates projections for the Fed. Today’s FOMC meeting minutes are likely to further encourage hawkish Fed expectations with traders keen to gauge the prospects of a further 75bps hike in July, following June’s move.
Key Factors for Today
- USD hits 20-year highs as global recessionary fears take-hold, FOMC minutes in focus today
- Risk markets plunge, Dax hits new yearly lows
- GBP weaker as BOE’s Bailey warns over global growth outlook
- Gold and silver both break lows
- Oil down 20% from June highs
Coming Up
- GBP BOE’s Pill and Cunliffe speak
- EUR EU Economic forecasts
- USD June FOMC minutes
Risk Sentiment Weaker on Recession Fears
Risk sentiment is looking very precarious at the European open on Wednesday. Yesterday we saw widespread selling across asset markets with the Dax falling to new lows on the year. Overnight we’ve seen the Nikkei and the ASX both falling, the shanghai composite came under heavy selling pressure also. The FTSE is starting the day with a better tone following some bounce back off yesterday’s lows on reduced BOE tightening expectations following comments from BOE’s Bailey yesterday.
Safe-Havens Rally on Risk Aversion, GBP Falls on Bailey Comments
In FX, safe-havens are back in the driving seat today as weaker risk appetite propels traders out of riskier positions. USD, CHF and JPY are leading the way over their major trading counterparts on Wednesday. GBP is trading heavily today following comments from BOE governor Bailey yesterday who warned that the global growth outlook has “deteriorated markedly”.
These comments came as the BOE published its financial stability report in which the BOE warned that UK households and businesses look likely to become more stretched over coming months. In light of these comments, the rates market dialled back its BOE rates projections for year-end by around 12bps. The latest set of EU economic forecasts today is likely to add to the bearish tone with the growth outlook in the eurozone set to be reduced also.
Gold & Silver Hit New Yearly Lows
Gold and silver both plunged yesterday amidst the breakout in USD. Gold prices sank to their lowest level since late 2021 while silver prices were seen cratering to mid 2020 levels. With the US Dollar looking likely to gain further upside in coming sessions, both metals look vulnerable to deeper losses. Traders will now be watching today’s FOMC meeting minutes for the next directional cues.
Oil Plunges on Recession Fears & Stronger USD
Oil prices were unable to hide from the moves ripping through markets yesterday. The combination of broad risk-aversion and a stronger US Dollar saw crude prices plunging by more than 12% at their worst yesterday. The market is now down more than 20% from the June highs. The weekly EIA inventories update will be delayed this week as a result of the US holiday on Monday.
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