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The dollar continues to gain strength on Monday, with the dollar index (USDX) ending the day 0.7% higher touching fresh 20-year highs as investors look ahead to the upcoming Fed meeting later this week where an aggressive tightening of monetary policy is expected to take place following a high reading of inflation published on Friday. More specifically markets expect a rate hike of 75 basis points on Wednesday, its biggest hike in nearly three decades.
The two-year Treasury yield is up about 60 basis points since Thursday's close to 3.3982% on the back of upcoming rate hikes while the 10-year yield is below that, at 3.3770%, in a signal that investors fear the rapid tightening path will hurt growth and possibly bring on a recession.
Asian shares along with Wall Street shares crashed on Monday, as bond yields reached a two-decade high on fears aggressive U.S. interest rate hikes would push the world's largest economy into recession. The Hong Kong 50 index, the Japan 225 and the China A50 losing 2.6%, 2.5% and 0.9% of their value respectively.
Cryptos crashed over the past week with Bitcoin plummeting from the $31k mark to trade close to $22k as at Tuesday 04:00 AM GMT. A clear collapse was also seen among other major cryptos such as Ethereum and Cardano that lost approximately 38% and 26% of their value respectively over the past week. The overall market capitalization fell to nearly $970 billion on Monday morning the lowest since January 2021.
For Tuesday, fundamental data releases schedule includes monthly German inflation data and the ZEW economic sentiment report from Germany and the Eurozone, Claimant Count Change and Unemployment Rate reports from the UK and monthly Manufacturing Sales from Canada. Later in the day, the US will publish its monthly PPI and Core PPI reports and China will be releasing data on Industrial Production, annual Retail Sales and unemployment.
The euro continues to move lower against the dollar on Monday, posting a 0.7% drop and closing yet another day in the red, approaching levels last seen in mid-May. The move follows a US inflation report at multi year highs and investors could also be pricing in the potential for an aggressive policy tightening plan by the Fed in the upcoming meeting.
Fundamentals for Tuesday include German inflation data and the ZEW economic sentiment report from Germany and the Eurozone, and later in the day, the US will publish its monthly PPI and Core PPI reports.
Gold prices moved sharply lower on Monday, posting losses of 3% and nearing the four-week low of 1787 seen in mid-May.
Pressure in the precious metal came from an increase in demand for 10-year Treasury yields, something that can impact demand for zero-yield investments while at the same time US inflation rates hit an annual 8.6% at the end of May, reaching levels not seen since 1981. As a result, the market is expecting the Fed to take considerable action in the upcoming meeting to tackle inflation.
Investors will now be watching closely on Tuesday’s monthly PPI reports from the US.
The price of WTI posted a 1.5% increase on Monday and continues to move even higher early on Tuesday, however, prices remain trading within the tight range seen in the past week of $117.19 and $123.19 per barrel.
Prices are weighed on one side by fresh COVID curbs in China that could likely have an impact on demand, but on the other side, strong support in prices comes from Libya as it decreases exports amid a political crisis that has hit output and ports. ANZ Research analysts cited Libya's oil minister Mohamed Aoun saying production in the country has dropped to 100,000 barrels per day from 1.2 million bpd last year.
The market will be awaiting weekly U.S. inventory data from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday for a view of how tight crude and fuel supply remain.
The main US stock market indices moved sharply lower over the past week, currently trading near lows seen in February, as fears of more aggressive rate hikes by the Fed, an increase in US treasury bond yields and the rising possibility of a new U.S. recession sent the US 500 down by more than 20% from its January high, giving signs of a shift to a bear market.
Some of the biggest losers of the index for Tuesday include mega-cap stocks such as Apple Inc, Microsoft Corp and Amazon.com Inc, that lost 4%, 4.5% and 5.6% respectively as the yield on the benchmark 10-year U.S. Treasury note hit 3.44%, its highest level since April 2011.
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