Spreadex Market Update
Risk Sentiment Rebounds On Monday as USD Fall Deepens
US futures are bouncing back from bear market territory on US/China trade news. USD weakness continues, leading to a rebound in risk-linked FX. NZD takes the lead as traders brace for RBNZ rate hike. Commodities trading higher today, benefitting from USD weakness. Light data sheet, BOE’s Bailey in focus.
Key Factors for Today
- USD weakness continues
- Last week the S&P 500 entered a bear market
- Equities prices rally on China trade news
- NZD leads FX as traders brace for RBNZ rate-hike
- Commodities rebounding on USD weakness
Coming Up
- BOE governor Bailey to speak
- NZD Retail sales
- EUR Eurogroup meetings all day
US Dollar Correction Continues on Monday
The US Dollar starts the week where we left off before the weekend as selling continues across the European open on Monday. The recent increase in hawkishness from the Fed has resharpened the focus on growth concerns.
With the Fed now widely expected to hike rates by .5% at the upcoming June and July meetings and with the likelihood of further rate hikes across the remainder of the year, investors are worried what impact the combination of tighter monetary conditions and elevated inflation will have on business and consumer activity.
Equities Prices Boosted by China Trade News
Despite recessionary fears, equities markets have seen better demand across the late Asian and early European trading today. The weakness in the US Dollar has seen the S&P rebound off the lows that took the index down over 20% from its record high, into a technical bear market, while the Nikkei has risen over 1% so far.
News that President Biden is considering reducing tariffs on China as part of a new Asia-Pacific trade deal is helping lift risk sentiment today with UK and European asset prices also rising, despite BOE and ECB rate-hike expectations.
NZD Sees Heavy Buying on Monday
In FX, the stronger start for risk assets this week has fed into much better demand for risk-linked currencies. NZD in particular is seeing strong gains across the board on Monday as traders brace for a further .5% hike from the RBNZ this week. AUD and GBP are also seeing decent bids while JPY has weakened on reduced safe-haven demand. Focus will be on BOE governor Bailey who speaks today, traders will be keen to hear how the recent 40 year high in inflation has impacted the bank’s outlook.
Precious Metals Rally on USD Weakness
A better start for precious metals today also. With the US Dollar under offer, gold and silver are both extending recent gains so far today. However, with equities prices recovering sharply the upside for gold and silver will likely be limited as investors attempt to play the risk recovery.
Oil Rallies, Helped by China Lockdown News
Oil prices are rising on Monday, helped by the ongoing weakness in USD. Crude prices are now trading around 8% higher on the lows printed last week. Fluctuating expectations with regard to potential EU sanctions on Russian oil remain a key driver for near-term price action. News that the Shanghai lockdown will end as of June 1 is helping fuel support, however, on expectations of a rebound in demand following the major disruption caused by the lockdown there over the last two months.
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