Headlines

* Wall Street ends up, growth stocks lead in thin trade

* Dollar sinks to bottom of recent range as some positivity returns

* Asian stocks gain as investors find foothold at the end of a brutal year

FX: USD was weaker Thursday as risk taking took a small hold. Treasury yields also backed off their recent highs. The DXY cycle low is 103.44. US Treasury yields eventually closed lower and on the lows for the day. The 10-year yield trades just above the 50-day SMA at 3.79%.

EUR/USD closed above the pandemic low at 1.0636, the first time since mid-December. But the major closed off its high and hasn’t quite broken out of its recent range. GBP/USD continues to trade around its 200-day SMA, now at 1.2043. USD/JPY fell for a second day in a row. It has lost around 1.75% in two days and is trading at one-week lows. The unscheduled BoJ’s bond purchases have spurred demand for the yen. AUD is up for a sixth straight day and near recent highs. The 200-day SMA is at 0.6861.

Gold is edging towards $1820. This week’s spike high is at $1833.

Stocks: US equities rose as investors sought out bargains in tech stocks which have been hammered recently. They looked past the recent surge in Covid-19 infections in China. The benchmark S&P closed1.75% higher. The tech-heavy Nasdaq ended up 2.54% as Tesla jumped over 8%. The EV-maker has plunged by more than a third this month on fears CEO Musk is being distracted by his Twitter purchase. Apple climbed 2.8% having fallen 12% this month. Investors have been worried by possible disruptions to its manufacturing operations in China. The Dow closed in positive territory, up by 1.05%.

Asian stockshave generally risen with the MSCI’s broadest index up 0.7%. But it is still set to end the year down 19% – its worst performance since the GFC in 2008. US equity futures are in the red. European equities are lower to start off the last day of trading in 2022.

Chart of the Day – DXY still handsomely up on the year

King dollar is on track for its best annual performance in seven years. Its peers have been left for dust for the most part of the year. For example, the Chinese yuan is set for its biggest yearly loss since 1984 (-8.6%). Sterling is poised for its worst performance since 2016, when the UK voted to leave the EU. This year saw an inflation shock turn into an interest rates shock. The Fed led the way among major central banks in its monetary tightening cycle. It hiked rates from near zero to 4.25-4.5%.  

But rate differentials have now narrowed between countries and are unlikely to widen further. This means the main tailwind for USD is fading. Will global economic growth offset the potential resilience in the US? Or will subdued risk appetite underpin support for the world’s premier reserve currency? The 50% mark of this year’s rally sits at 104.70. The pandemic high is at 102.99.