Overnight Headlines

*ECB weighing up whether to announce size, duration of bond-buying scheme

*Australian consumers spent big in May after first rate hike

*Citi month-end model points to dollar buying

*Asia stocks lose bounce from shorter quarantine, slip on inflation fears

US equities dropped sharply as risk-off returned. Consumer confidence fell more than expected with big tech leading the losses. The Nasdaq fell over 3%, the S&P500 and the Dow ended 2% and 1.6% lower. All sectors were in the red except for energy. Asian stocks are trading softer, extending losses on Wall Street over recession, inflation and high oil prices. Futures are mixed.

USD recouped losses and rebounded 0.6% higher. DXY is hovering around the 104.50 mark. EUR tested 1.05 and GBP has fallen below 1.22. USD/JPY currently trades on the 136 handle. Commodity currencies have generally dipped as the antipodeans get hurt by subdued risk appetite. USD/CAD fell to 1.2819 before dollar buying saw it close at 1.2872.

Day ahead –Sintra forum may offer (hawkish) policy colour

We had to rely on press stories for detail about the new ECB anti-fragmentation tools yesterday. President Lagarde also indicated that the bank would be prepared to step up the pace of tightening due to start in July if inflation continued to worsen. Today sees a panel discussion at Sintra between the Fed’s Powell, Bank of England’s Bailey and ECB’s Lagarde at 14.00 BST.

Any hints on how policymakers plan to tackle global inflation pressures will be seized upon by markets. Recent comments suggest that the central bankers may look to out-hawk each other to show off their inflation fighting credibility. Or is it to project an aura of confidence to markets shaken by inflation risk? That would probably see more selling in equities.

Chart of the Day –Weekly Nasdaq stuck in bearish channel

The tech-heavy Nasdaq is stacked with growth stocks that have swooned this year owing to their sensitivity to changes in interest rate expectations. The index is down over 30% already. Perhaps more importantly, the mentality of traders is now one of selling rallies rather than buying the dips.

Prices have been in a bear channel in 2022 with a series of lower highs and lower lows. The middle of the month saw a new low posted at 11,037 on the Nasdaq 100. This was towards the bottom of the channel and the index bounced back above 12,000. But sellers stepped in and we are once again looking towards the lows.  The halfway point of the March 2020 low/record high sits at 11,768. The 200-week SMA is 10,839 with the next Fib level (61.8%) at 10,589.