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Daily Wrap Up 03 August 2022

3 Aug 2022 05:57 PM

Stocks pop as Pelosi departs Taiwan

Taiwan has been in the news recently as Nancy Pelosi, the US House Speaker, arrived on the island yesterday, even though the Chinese government warned against the visit. The trip raised the political temperate between the US and China, but now that Pelosi has departed, traders are fretting less about relations between the two largest economies in the world, and in turn stock markets rallied. We saw more downbeat economic data from the eurozone as the final reading of the services PMI report came in at 51.2, the slowest growth rate in six months, but it exceeded the 50.6 flash reading. Retail sales in the euro area dropped by 1.2% in June. The updates add to the worries the region is cooling. That being said, traders shrugged off the data and focused on the Pelosi story. The DAX and CAC closed up 1%. The FTSE 100 finished 0.5% higher as a rally in banking and oil stocks helped the index.

US stocks are outperforming their European peers as the S&P500 is up over 1.4%. The political news laid the foundation for the rally and the ISM services report gave sentiment an extra boost. The headline reading ticked up to 56.7, from 55.3. It was a solid report across the board as the employment metric nudged up to 49.1 and new orders jumped to 59.9, from 55.6. Traders focused on the prices paid component as it fell from 80.1 to 72.3. It was the best of both worlds because orders rose, but at the same time, prices slide. It indicates the economy is improving but at the same time, prices are cooling.

The US dollar was in the red for much of the session, but it was given a lift by the ISM data. Fed members, Mary Daly and James Bullard made hawkish remarks today, Daly said it would be appropriate to lift by 50 basis points in September, while Bullard claimed that rates need to be kept higher for longer to tackle inflation.

Oil saw a big turnaround today as OPEC+ announced a much smaller than expected lift in output. The group plans to raise output by 100,000 barrels per day from next month but there was chatter of a 300,000-400,000 BPD increase, so that drove up the price. The EIA report showed that US oil inventories surged by 4.5 million barrels, while the consensus was for a 1.5 million-barrel drop. The U-turn higher in the greenback is hurting gold and silver.

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