US stocks mostly lower as bank woes sour risk sentiment, BoE hikes rates
12 May 2023
By JinDao Tai
US indices closed the session mixed with outperformance in Nasdaq, propped up by Google(GOOG) as their continuing I/O event bolstered their stock price. However, other major indices finished solidly in the red, with the Dow down over 200 points, dragged down by Disney, and the S&P500 and Russell 2000 suffering from further banking woes after PacWest(PACW) reported a 10% draining of deposits, seeing its stock price tank 22% on the day.
In Thursday’s main risk even the Bank of England hiked rates 25bp as expected by the usual 7-2 vote split, this is now 12 hikes in a row for the BoE. The accompanying statement had a bit of each way for the doves and hawks, with the BoE stating that “prior tightening was yet to make its way into the economy” but also opting to retain guidance that “if there were to be evidence of more persistent (inflation) pressures, then further tightening in monetary policy would be required”.
GBPUSD initially spiked higher to test the major resistance above 1.26, but quickly gave back all the gains and then some as rates markets priced in a less aggressive BoE going forward.
To be fair the USD did push higher against most currencies, despite a lower than expected PPI reading. Soured risk sentiment caused by banking jitters and the ongoing debt ceiling impasse seeing haven flows into the USD. The UD Dollar Index pushing through the minor resistance at 101.80, settling above the 102 mark.
An initial spike in Gold quickly sold off as a surging USD saw XAUUSD push below it’s 2020 support level to finish the session well in the red. Safe haven traders now seem to be favouring the USD and JPY over gold which is an ominous sign for the gold bulls if it lasts.
Crude Oil was lower on Thursday, weighed on by cooler than expected Chinese inflation data, a resurgent USD, and risk-off sentiment on banking woes. The lower than expected CPI and PPI out of China stoked demand concerns and worries the post-COVID rebound is not as strong as hoped.
USOUSD sliding to $71 USD a barrel before finding some support.
Today’s main risk events are the NZ Inflation expectations figure, with the NZD outperforming lately a high reading here could see the AUDNZD push even lower, setting up for a possible mean reversion trade. UK GDP is unlikely to have much effect on the market after Thursdays BoE meeting, while Consumer Sentiment out of the US will be a good gauge on US economic health and swing the needle somewhat in the markets Fed expectations for June.
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Global markets enter the 3rd week of May against the backdrop of rising market concern regarding the ongoing US debt ceiling impasse as well as ongoing risks in the US banking system, both of which dampening risk sentiment and seeing markets rangebound as they await a solid catalyst to get moving.
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