Headlines

* Dolar rises as hawkish central banks dent risk sentiment

* BoE steps up inflation fight with surprise 50bp rate hike to 5%

* Gold slumps as rate hikes push real yields higher

* EUR/USD corrects further from multi-week high ahead of MPIs

FX: USD was better bid and looks to be stabilising above 102. The Fed’s Powell said rate hikes will come at a “careful pace” from here. Having raised rates at 10 straight meetings, the Fed skipped the June meeting. But the new dot plots pointed to two more rate hikes. Rate curves inverted further as front-end yields were taken higher across the board after more hawkish central bank action. The 2-year yield made a fresh cycle high at 4.80%. The 10-year yield pushed back up to near the top of the recent range just below 3.80%.

EUR is down for a second day this morning. It topped out at 1.1012 yesterday. GBP initially spiked up to 1.2841 after the outsized BoE rate hike surprise. Cable eventually closed lower on the day. It is down again this morning as it nears the May high at 1.2679. The market is concerned about the impact of much tighter policy on consumers and rising mortgage rates. Retail Sales just came in better-than-expected. USD/JPY is making new highs this morning. The major has moved above 143 with yield differentials between the Fed and BoJ to the fore. We are getting nearer to verbal intervention noises from Japanese authorities.   AUD has sunk sharply today after yesterday’s move lower. The 200-day SMA at 0.6690 could offer some support. USD/CAD dropped to a new nine-month low at 1.3138 before bouncing today. Strong resistance sits at 1.3262.

Stocks: US equities closed mixed with tech rebounding. Participants digested a host of central bank action and various data releases The benchmark S&P 500 added 0.37% and the Nasdaq 100 finished higher 1.18%. But the Dow closed off 0.01%. The tech sector outperformed after suffering the day before, though most sectors finished in the red. Amazon led the charge, up 4.3% to fresh nine-month highs. Small caps were pressured amid economic headwinds and the higher yield outlook.

Asian stocks faltered after initial gains. The Nikkei 225 gave back gains after mixed inflation data. The Hang Seng was pressured with big losses in healthcare, tech and property.

US equity futures are pointing to a lower open as markets react to numerous hawkish central banks. European equity futures are pointing to a softer open (-0.7%). The Euro Stoxx 50 closed down 0.4% yesterday.

Gold dropped to a new cycle low at $1919 on Powell’s comments. It settled at $1932 but the 100-day SMA now sits above as resistance at $1942.

Day Ahead – Eurozone PMIs, central bank action/reaction

We get important flash PMI survey data out of Europe shortly. Key will be if the service sector continues to hold up relatively well. But expectations are for manufacturing to remain weak. Any convergence between the two sectors will be in focus. The data may also highlight the widening discrepancy between softening data and central banks’ own optimistic macro outlooks.

It was a tumultuous day of central bank action yesterday. The BoE surprised, Norges bank also went for 50bps while the SNB hiked by 25bp as expected but still guided for further rate increases. This pushed up global yields. Markets are now generally pricing a ‘higher for longer’ interest rate environment which added broad support to the USD. Central banks have entered another phase in their fight against elevated core inflation. Their credibility is at stake which means they may not be shy in more tightening until something breaks.

Chart of the Day – Gold breakdown

The precious metal hit new three-month lows yesterday. It has dipped further this morning to $1910 amid higher Treasury yields. This follows Fed Chair Powell’s comments and the hawkish BoE and Norges Bank hike yesterday. After trading in a range more or less between $1939 and $1984, sellers will now look to the psychological $1900 support mark. The Fib level (38.2%) of the October rally sits at $1893. The 100-day SMA at $1942 near enough matches up with the bottom of the range as initial resistance.