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Daily Wrap Up 01 August 2022

1 Aug 2022 04:53 PM

Wall Street ticks up, dollar dives again

European stock markets closed largely flat amid low volatility. The major indices were in positive territory for much of the session but dipped just before the session ended. Strong results from HSBC boosted the British banking sector but declines in oil and mining stocks prevented the FTSE 100 from racking up further gains. HSBC shares rallied 6% as the bank posted better-than-expected profits which paved the way for them to announce an interim dividend of 9 cents – the cash return to shareholders caught traders’ eyes. Over in the US, the bulls are taking a breather following the very impressive rally seen last week, where the S&P 500 hit its highest level since early June. Today, the index is up fractionally, the market is being supported by the dip in yields. The US 10-year yield has fallen below 2.6%. It is worth noting, it came close to testing 3.5% in mid-June, so it has been a considerable drop in the past seven weeks. The big decline in the yield suggests that bond traders are not worried about the Fed carrying out several large rate hikes in the months ahead.

The US dollar has taken a beating again, as the decline in yields suggests the Fed could take their foot off the accelerator with respect to its hiking cycle. The ISM manufacturing data was more downbeat than the headline figure suggests as it only fell to 52.8 from 53. The new orders component edged lower from 49.2 to 48, and the prices paid metric slumped from 78.5 to 60 – the major fall could be an early indication that inflation has peaked. Rising inflation is the main reason why the Fed are tightening policy, and if it turns out that costs are about to retreat, that could lead to the Fed scaling back its hiking programme.

Oil is firmly in the red ahead of the OPEC+ meeting on Wednesday. There is talk the group of oil producing nations might discuss the possibility of a small increase in output from September. In the past few months, the group has not been in any rush to ramp up output, but the economic climate has cooled a little, and perhaps they would be open to the idea of allowing oil prices to drift a little lower in a bid to remove some of the pressure on countries that are net importers of oil. Silver is once again benefitting from the tumble in the US dollar.

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