Overnight Headlines

*US Dollar hits 20-year high as risk aversion dominates markets

*Global stocks suffer their worst one-day decline since June 2020

*Commodity currencies hit by tumbling oil prices, Bitcoin near 10-month low

*UK set to ditch Northern Ireland protocol after giving up on EU talks

USD traded to a new 20-year high as concerns over the Fed’s ability to combat high inflation boosted the greenback’s safe haven appeal. This morning has seen a slight pullback from the DXY high at 104.18. EUR continued to consolidate above 1.05. GBP dipped to a new low at 1.2260 before buyers stepped in taking prices above 1.2350. USD/JPY was choppy, making a new top at 131.34, dropping below 130, before returning flat. Early panic in Asia saw AUD drop to a low at 0.6910 and NZD at 0.6283 before moderating.

US equities continued to tumble on inflation fears and rising bond yields. The Nasdaq lost 4.29% and is off more than 27% from 52-week highs. The S&P500 fell 3.2% and the Dow dropped 1.99%. It is down more than 12% from 52-week highs. Growth and tech led the declines. Energy was also hit, along with small caps. Asian markets have been mostly negative although some downside has been reversed. US and European futures are in the green after making new lows overnight.

Market Thoughts – Equity bloodbath…

Another sombre day in risk markets, and especially stocks. Bond yields turned around during the day in huge intraday volatility. But the widely watched 10-year US Treasury posted another new top at 3.20%. This impacted the Nasdaq the most, tumbling to its lowest levels since November 2020. The tech-heavy index has fallen 10% over the past three sessions.

Moves in bond markets sum up the current volatility across different asset classes. Yields are surging one moment as they brace for super aggressive tightening cycles by the likes of the Fed. They then fall the next when pondering the effects on growth. But corrections in yields are not lasting long. At least tightening financial conditions could possibly mean markets see less of a need to hike rates. Though it’s probably too early for that just yet. Watch out for a slew of ECB and Fed speeches today ahead of US CPI tomorrow.

Chart of the Day – Gold drops to next support

 Commodity markets couldn’t escape the broader risk-off move. Markets are concerned about the China Covid lockdowns, recession risk and rising rates. A stronger dollar is also not helping. Gold is especially at the mercy of the latter and the continued move higher in real US Treasury yields. It is also notable that China and India, two major sources of demand for gold, are both seeing their currencies weaken, which will impact short-term demand.

Bugs pushed the precious metal up to $1998 in mid-April. But since then, sellers have been in the driving seat. Prices traded around the November 2021 top at $1877 and the 100-day SMA at $1882 last week. We fell yesterday to the January high which is offering support again at $1853. The 200-day SMA sits below at $1835.