Equities Sink As Fed Turns More Hawkish on Rates

S&P sees largest one day loss since March 16th 2020 as Fed tightening fears grow.  Markets concerned over growth as traders brace for more aggressive Fed action. CHF sees fresh safe-haven demand, overtaking JPY. Oil bounces off lows as EU negotiations continue over possible Russia sanctions. 

Key Factors for Today

• Equities under heavy selling pressure amidst fears of aggressive Fed action 
• Further big US names miss earnings forecasts 
• CHF sees safe-haven influx
• Gold and silver muted
• Oil bounces off lows 

Coming Up

• USD Philly Fed manufacturing index
• USD unemployment claims
• GBP Gfk consumer confidence 

US Dollar Recouping Initial losses on the Week

The US Dollar saw much better demand yesterday and is starting today’s European session with a bid tone. The greenback seems to be deriving support from Fed chairman Powell’s comments earlier this week pointing to a more aggressive policy stance from the Fed. Powell noted that the fed stands willing to keep going on rates, lifting them above neutral if necessary, to bring inflation down. These comments were echoed by Fed’s Harker yesterday who voiced support for further .5% hikes in June and July at a minimum. 

Equities under Heavy Selling Pressure

Equities markets have turned sharply lower again today, extending yesterday’s losses. Fears of a more aggressive rates path from the US, as well as concerns over similar action from the BOE and ECB, have brought growth fears back into sharper focus this week. The FTSE is now down over 2% from yesterday’s highs. The S&P saw its largest one-day loss since March 16th 2020 yesterday with sentiment hit by Fed tightening fears and further poor earnings performance. Big name retailer Target followed Walmart to report losses over Q1, underscoring slowdown concerns in the US. 

CHF Leads the way in FX, AUD & GBP Suffer

In FX, CHF has emerged as the strongest currency over late Asian and early European trading. Replacing JPY as the safe-haven of choice for now, CHF is benefiting from safe-haven demand while antipodean currencies, AUD and NZD, are back under heavy selling pressure. GBP remains heavily sold today following yesterday’s CPI data which confirmed inflation hitting 40-year highs of 9% in the UK last month. CAD retains decent demand today following yesterday’s data which saw Canadian monthly CPI rising just 0.6% from the prior month’s 1.4%. Overnight, AUD unemployment rate was seen falling back to 3.9% from 4% prior. 

Gold & Silver Still Stagnant 

Precious metals continue to hold in a tight range as we move into the end of the week. Both gold and silver have been confined this week, unable to benefit from the initial correction lower in USD and then hampered by its recovery yesterday. It seems the market is awaiting clearer directional forces to open up the next move. If USD finds another leg up from here, however, we can expect gold and silver to head lower.

Oil Prices Rally Following Bullish EIA Release 

Oil prices have seen better demand today, bouncing off the initial lows plumbed over late Asia. Yesterday’s EIA report highlighted a large 3.4 million barrel drawdown in commercial US crude stores, helping support oil prices near-term. Bigger focus remains on the continuing EU negotiations regarding potential further action against Russian energy. While a full-ban looks unlikely now, some countries such as Germany have outlined plans to push ahead with domestic bans independently.