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Daily Wrap Up 12 May 2022

12 May 2022 04:25 PM

European stocks slump, yen flies

Once again fears about high inflation and the prospect of more interest rate hikes in the US are hammering stocks. Yesterday, headline CPI in the US cooled a little, but it still topped forecasts and that led to a negative finish on Wall Street last night. Traders in European collected the bearish baton from their American counterparts and that influenced sentiment in this part of the world. Today, it was confirmed that US PPI edged lower from 11.2% to 11%, while economists were anticipating 10.7%. PPI can be a leading indicator for CPI because if prices are high at the factory level, it is likely they will be high for consumers as prices are typically passed on to the end client. Equity markets in this part of the world are underperforming as the DAX and the FTSE 100 are down 0.7% and 1.4% respectively. US index futures were showing large losses ahead of the open of the New York Stock Exchange. Even though the S&P 500 was lower it is now slightly up on the day as volatility is high.

The Japanese yen is booming thanks to the flight-to-quality effect as dealers are dumping stocks, metals, and oils, and in turn ploughing cash into assets that are deemed to be lower risk. To a lesser extent, the US dollar is also benefitting from the risk-off mood. Considering the latest PPI data from the US, there are still speculation the Fed will announce more interest rate hikes in the months ahead. Despite the fact the US dollar is up 0.4%, USD/JPY is down a staggering 1.4% - which speaks to the strength of the yen. AUD/JPY is down an eye watering 2.3% as there is a broad fall in the Aussie and a surge in the yen.

Industrial metals typically outperform when optimism is in circulation, but today fears about slower global growth are doing the rounds. Commodities such as copper and platinum are firmly in the red. WTI, and Brent crude are holding up relatively well but that’s on account of concerns about supply being squeezed rather than demand.

As a part of the wider bearish move in the markets, Bitcoin has dropped to its lowest mark since December 2020. The cryptocurrency has been edging lower recently has it would appear the aggressive falls seen in stocks has ramped up selling pressure on the asset too. If the recent bearish run continues, it could target the $25,000 region. The spectacular slump in the value of Luna is being felt across the crypto sector, which is adding to bitcoins woes.

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