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A 75-bps Rate Hike still an Aggressive Boost for the Economy, Recession Concerns remain


US stock surged on Friday, rebounding back and recovering some of the ground it lost at the end of a dizzying week as investors reduced their bets on a bigger rate hike by the Fed in July. Federal Reserve Governor Christopher Waller and St. Louis Fed President Jim Bullard, who are the two most hawkish FOMC members, said that they were not in favour of the bigger rate hike at the upcoming meeting in July. Therefore, markets are pricing in nearly 75 basis points of Fed tightening this month and down from a full-point bet earlier this week. However, the concerns about a potential recession remained as a 75 bps rate hike is still an aggressive boost for the economy. In the Eurozone, the ongoing fears over disruption to the euro-zone economy from energy supply constraints and fragmentation risks might keep weighing on investors’ sentiment, which is unlikely to ease in the coming weeks.

The benchmarks, S&P 500 and Nasdaq 100 both advanced on Friday as the less hawkish stance from Fed officials and positive US retail sales data both lend support to the market mood. The S&P 500 was up 1.9% daily and the Nasdaq 100 also advanced with a 1.8% gain for the day. All eleven sectors stayed in positive territory as the financials and the health care sectors are the best performing among all groups, rising 3.51% and 2.45%, respectively. The Dow Jones Industrial Average meanwhile climbed the most with a 2.1% gain on Friday and the MSCI World index rose 1.6%.

Main Pairs Movement

The US dollar declined on Friday, extending the previous day’s retracement slide from a two-decade high and edged lower on the last day of the week. The DXY index remained under bearish momentum during the first half of the day, dropping to a daily low below 108 level in the US trading session. Retail Sales in the US increased by 1% in June, which was better than the market’s expectation of a 0.8% rise but failed to lift the greenback higher.

GBP/USD advanced with a 0.38% gain on Friday amid the risk-on market mood across the board. However, the UK political uncertainty and Brexit woes might overshadow the prospects for a further tightening by the Bank of England and undermine the cable. The GBP/USD dropped to a daily low below 1.181 level, but regained upside traction and extended its daily gains. Meanwhile, EUR/USD witnessed heavy buying and refreshed its daily high above the 1.009 level to trim its weekly losses in the US session. The pair was up almost 0.72% for the day.

Gold declined with a 0.16% loss for the day after dropping to a daily low below the $1700 mark in the early US trading session, as the less hawkish stance from Fed officials continued weighing on the US dollar and offered some support to the dollar-denominated gold. Meanwhile, WTI oil preserved its upside traction and moved higher to the $98 area during the US session. But fears of a potential recession have raised concerns about the fuel demand outlook.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
JPYJapan – Marine DayAll DayNone
NZDCPI (QoQ) (Q2)06:451.5%

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