Yields, US dollar extend run-up on hawkish central bank expectations during full markets

MARKET 7 JUNE

The return of full markets brought a rally in the Treasury yields and the US dollar as traders brace for faster/heavier rate hikes by the global central banks. The same joined anxiety ahead of this week’s key data/events to portray risk-off mood during early Tuesday.

A firmer US dollar weighed down the prices of crude oil and Antipodeans but AUDUSD managed to cheer RBA’s bold 0.50% increase in the benchmark interest rate. Gold, on the other hand, snapped a two-day downtrend amid mixed moves.

China failed to improve market sentiment, which in turn drowned shares in the Asia-Pacific and the European session. The Japanese yen refreshed its multi-year low amid strong yields.

BTCUSD and ETHUSD drop the most in a week amid the market’s rush for risk safety.

Following is the list of major assets’ latest performances:

  • Brent oil struggles for clear direction around $120.00 after reversing from its weekly high.
  • Gold prints mild gains near $1,845, snaps two-day downtrend.
  • USD Index rises for the third consecutive day, up 0.28% near 102.70 at the latest.
  • FTSE 100 remains sidelined near 7,600 but EUROSTOXX50 and DAX are both down around 1.00% at the latest.
  • Nasdaq gained 0.40% while S&P 500 added 0.31% but Dow Jones stayed directionless inside the weekly trading range on Monday.
  • BTCUSD and ETHUSD drop around 5% each while taking offers near $29,500 and $1,760 by the press time.

Risk-aversion returns to the table despite China’s optimism

Given traders’ cautious mood ahead of the ECB and the US CPI data, not to forget recently increasing odds of the hawkish central bank moves, global markets printed a risk-off start to Tuesday, after a sluggish start to the week amid holidays in multiple bourses.

The risk-aversion wave ignored China’s hopes of economic recovery during the second half of 2022, as well as the Bank of Japan’s (BOJ) optimism to overcome the yen’s plunge without much damage to the easy monetary policy.

USDJPY rallied to fresh two-decade highs on broad JPY weakness while the AUDUSD jumped more than 50 basis points (bps) after the RBA surprised markets with a 0.50% lift to the benchmark rate, to around 0.85% at the latest.

Brent oil struggles to cheer China-linked news amid a strong US dollar and fears that tighter monetary policies will weigh on energy demand.

However, gold prices manage to rebound as traders recollect the metal’s safe-haven appeal amid broad risk-aversion.

Cryptocurrencies ignore funding issues in Canada and Indonesia as US dollar strength recalls the bears.

⏫ 🟢 Strong buy: USDCAD, USDCHF and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, brent oil, gold, BTCUSD

Pre-ECB, US CPI anxiety to dominate

Looking forward, global markets are likely to remain pessimistic as multiple central bankers are bracing for faster/heavier rate hikes to battle the inflation woes. For an immediate basis, the European Central Bank’s (ECB) July rate hike widely chatters whereas the Fed’s 0.50% increase to the benchmark rate after September is debatable.

Other than the data/events, chatters surrounding China and Russia may also entertain short-term traders, not to forget second-tier economics from the US, Canada and Europe.

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