Global Markets Overview: What Makes This Year Tick In Yields, US Dollar And Crude Oil

Yields

Yields were driven higher after the Fed emphasized a data-driven approach, which left the door open for more hikes ahead. U.S. yields were additionally supported by impressive advance GDP readings and a lower-than-expected initial jobless claims figure.

Yields in Europe dropped largely after the ECB noted that the near-term economic outlook for the euro area had deteriorated owing to weaker domestic demand, which suggested that a pause may be on the table for the next meeting.

Japan’s benchmark bond yields closed the week markedly higher after the Japan central bank loosened its yield curve control, with traders speculating that there is more policy normalization to come.

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Equities

Equities held their ground amidst a busy earnings calendar. Stocks in Asia opened the week on the rise with China investors optimistic that more economic support will come from Beijing while Japanese players bought on reports that the Bank of Japan officials saw little urgent need to address the side effects of their ultraloose monetary policy.

Investors sent stocks lower into midweek on trimmed risk positions ahead of the Federal Reserve’s rate decision. The Fed, after hiking 25 bps, said any further hikes would be data dependent, leading to speculation that the Fed is near the end of its tightening cycle, sending stocks higher.

As earnings came in, Microsoft reported lukewarm second-quarter sales growth and predicted that its crucial cloud business, Azure, would keep slowing down.

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Currencies:

The US Dollar initially weakened against all its G10 peers as traders trimmed bets of further Fed rate hikes this year.

This was to turn towards the end of the week after a strong advance GDP report that showed resilience in U.S. economic activity, easing recession fears, and a strong U.S. consumer confidence print.

The Euro lost against its peers as Eurozone PMI readings surprised the downside and the ECB introduced the possibility of pausing rate hikes. The Sterling pound opened the week lower on downbeat PMI figures but clawed back the losses on the back of Euro weakness.

The AUD initially gained on expectations of a stimulus from China’s Politburo and the resultant increase in demand for Australian commodities but gave back all these gains when Australia’s CPI came in low, dashing hopes of future RBA hikes.

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Commodities:

Crude oil extended gains for another week as the EIA report showed a smaller-than-expected reduction in stockpiles. It was a red close for corn and other grain ahead of U.S. rainfall and expected ease of Russian attacks on Ukraine grain facilities.

Soybeans dropped 1.37% while sugar shed 4.36% w/w. Natural gas continued trading within the 2.40- 2.80 range as orange juice added a whopping 8.39%.

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Data from Standard Investment Bank