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  5. Global Fundamental Analysis 28/07/2022

Global Fundamental Analysis 28/07/2022

Global Fundamental Analysis 28/07/2022, FP Markets

Opening Call: The Australian share market is to open higher.

U.S. stocks surged after the Fed lifted rates as expected and Chairman Powell said the economy is not in a recession. The yield on the 10-year Treasury ticked down to 2.79%. The WSJ Dollar Index dropped to 98.34, helping gold prices recoup some of their recent losses. Oil prices climbed after data showed a weekly drop in U.S. inventories of crude oil and refined fuels.

Australian Market

Australia’s S&P/ASX 200 added 0.2% after banking stocks gained as inflation data supported economists’ view that the Reserve Bank of Australia will increase interest rates through the year. Materials and energy stocks slipped amid easing commodity prices, while the health sector rebounded from consecutive declines. The ASX 200 is up 0.5% so far this week.

US Market 

U.S. stocks extended their gains after the Federal Reserve signaled it would move aggressively to tame inflation and the central bank’s chairman argued that the nation’s economy hadn’t yet slipped into a recession. The S&P 500 rose 2.6% while the Dow Jones Industrial Average advanced 1.4%, and the Nasdaq Composite jumped 4.1%. The U.S. central bank lifted its federal-funds rate by 0.75 percentage point, to a range between 2.25% and 2.5%, and said in a statement it is “strongly committed to returning inflation to its 2% objective.”  

“The Fed is prepared to continue until they have price stability in lowering inflationary expectations,” said Quincy Krosby, chief equity strategist at LPL Financial. “That’s what the market wants. Inflation remains and the question now is how fast is it pulling back.” Fed Chairman Jerome Powell told reporters he doesn’t believe the U.S. is in a recession, pointing to the labor market as a source of strength. “Two-point-seven million people hired in the first half of the year – it doesn’t make sense that the economy would be in recession,” Powell said.

Commodities

Gold prices finished a bit higher on the heels of a two-session decline, then extended their gains into the electronic trading session after the Federal Reserve ‘s decision to lift interest rates, as expected. Gold futures for August delivery rose nearly 0.1% to settle at $1,719.10 an ounce. Gold futures then edged up further in the immediate aftermath of the U.S. central bank’s monetary policy decision. Gold and silver “clearly had today’s rate rise priced in, trading pretty much flat in a tight range before and after the statement,” said Adrian Ash, director of research at BullionVault.

Oil Futures

Oil futures settled at their highest price in a week, buoyed by U.S. government data showing weekly declines in domestic crude and product supplies. West Texas Intermediate crude for September delivery rose 2.4% to settle at $97.26 a barrel on the New York Mercantile Exchange. September Brent crude rose 2.1% to reach $106.62 a barrel on ICE Futures Europe.  

Oil prices held onto most of their gains after the Fed announced that it was raising its benchmark short-term rate by another 0.75 percentage point. Oil prices added to early gains after the Energy Information Administration reported weekly declines in U.S. crude, gasoline and distillate supplies.  

There’s no way to look at energy prices today and “not have a bullish outlook,” said Tariq Zahir, managing member at Tyche Capital Advisors. The EIA reported much larger inventory draws across the board, he said. “We do feel we could see crude regain the $100 level [in WTI] in the days and weeks to come,” said Zahir.

Forex

Major currencies were firmer against the US dollar in European and US trade. The Euro rose from lows near US$1.0096… to highs near US$1.0217 and was near US$1.0200 at the US close. The
Aussie dollar lifted from lows near US69.13 cents to highs near US70.09 cents and was near US69.95 cents at the US close. And the Japanese yen rose from near 137.41 yen per US dollar to JPY136.38 and was near JPY136.50 at the US close.

European Markets

European sharemarkets advanced to near 7-week highs on Wednesday. The pan-European STOXX 600 index rose by 0.5% with travel and leisure shares up 3.0%. The German Dax index gained 0.5% and the UK FTSE index was up 0.6%. In London trade, shares of Rio Tinto fell by 0.7% but BHP shares rose by 0.1%.

Asian Markets

Earlier Wednesday, Chinese shares ended mixed, as losses by liquor makers were offset by gains among renewables and IT companies. Market movements in the near term may be driven by the upcoming U.S. Fed decision and China’s Politburo meeting, Capital Securities said. The Shanghai Composite Index slipped 0.1%, while the Shenzhen Composite Index rose 0.3% and the ChiNext Price Index finished flat.

Hong Kong’s Hang Seng Index lost 1.1%, dragged down by consumer shares as worries about high inflation and recession risks persisted. Coronavirus-related developments will also remain in focus amid concerns over rising case numbers in China. The Nikkei Stock Average reversed early losses to climb 0.2%, supported by gains in transportation stocks. Focus is expected to remain on corporate earnings.

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