Market Commentary - May 06, 2022

The U.S. equity market has been sold-off abruptly on Thursday to completely erase the rally the day before, with practically all of the shares ended in red territories. The tech heavy Nasdaq index plummet 5%, while the Dow has lost over 1,000 points and the S&P 500 declined 3.5% with more than 95% of the benchmark stocks ended lower. The fear gauge VIX index skyrocketed 22.7% to close at 31.2 points. It seems Wednesday’s stock rally driven by the Fed’s comments are simply an illusion as the markets still worries about the upcoming monetary tightening from the Fed.

European shares continued to fell for the second day yesterday, by giving up earlier gains made during the first half of the trading session to track Wall Street’s low market openings. Majority of the stock indices closed down marginally with the exception of FTSE 100, in which it was up by 0.13%. Anxiety on accelerated interest rate increase and China’s COVID lockdowns are some of the main reasons of the declines in recent weeks. Meanwhile in Eastern Europe, the Russian forces have slowed down the pace of advance and instead, they are utilizing their superior artillery power to gradually wear down the Ukrainian resistances rather than securing a rapid breakthrough. As a result of such shift of military tactics, the war may well last into the summer.

In Asia, stock market performances are dim across majority of the countries on Friday, as practically everybody are mirroring the downbeat U.S. market overnight, except Japan’s Nikkei 225 as it rose 0.55% shortly after the opening of the afternoon trading session. Both the Chinese and HK stocks dipped significantly with the Hang Seng Index looking to drop through the key level of 20,000 points once again. Mainland China has reassured that relaxing COVID controls will lead to large-scale infections and hence, it is unlikely that the local government will give up the stringent zero-covid policies which in turn, has worried international investors.

In terms of oil, U.S. fuel prices have surged faster than crude oil as the U.S. delivered more refined products to Europe following Russia’s invasion of Ukraine, with the price of WTI crude rose for nearly three days to trade at $109.20 per barrel today. Price of the yellow metal is looking to set for a third consecutive weekly loss as it is currently at the level of $1,876 per ounce. The greenback is looking to head for a fifth winning week against other major currencies on Friday, ahead of the NFP report.

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Figure 1 (Source: IS Prime) CC.BTC.USD daily: Correlation between bitcoin and equities intensifies with the cryptocurrency following Wall Streets tumble to low of $35.5K handle.

Headliner to Review

  • The Bank of England (BoE) hiked interest rates yesterday by 25 bps, which now brought the benchmark rate to 1% with three out of nine policy committee members asking for an even bigger hike on concerns about rising pay growth.
  • Unemployment claims figure in the U.S. increased from 180K to 200K during the last week of April.
  • CPI in Switzerland increased by 0.4% in April compared with the previous month, largely due to rising prices for heating oil and new cars.

Headliner to Watch

  • The U.S. final wholesale inventories figure is due to release next Monday, with figures from the previous month recorded 2.3%.

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Authors:
Antony Tan
Kerry Man