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Concern about the global economy, Market expect another 75bps rate hike


Tuesday’s decline in US stocks was precipitated by deteriorating economic conditions, worries of a recession, and sky-high inflation. The dismal outlook of the world’s largest retailer, Walmart Inc., illustrates the effects of inflationary pressures on consumer spending. Concerns over a faltering global economy prompted investors to anticipate another 75-basis-point increase before to a widely anticipated Federal Reserve interest rate hike, with the total 150-bps interest rate spike in June and July reaching the highest level since the early 1980s.

Alphabet Inc., the parent company of Google, and Texas Instruments Inc. rose after earnings, but Microsoft fell due to its slowest revenue growth since 2020. In addition, the sales of McDonald’s Corp. and Coca-Cola Co. exceed expectations, and Coinbase Global Inc. is under investigation in the United States for allegedly allowing Americans to trade digital assets that should have been registered as securities, according to three individuals familiar with the situation.

The S&P 500 and Dow Jones Industrial Average both dipped on Tuesday as a result of the Fed’s threat to raise interest rates on Wednesday, recession fears, and disappointing earnings reports. The S&P 500 plummeted 1.19% daily, while the Dow Jones Industrial Average declined 0.7%. Eight of eleven sectors remained in the red, with Consumer Discretion and Communication Services having the worst performance of all categories, falling 3.38% and 2.20%, respectively. In the meantime, the Nasdaq 100 sank 2% on Tuesday, while the MSCI world index declined 0.9%.

Main Pairs Movement

As yesterday’s financial markets were dominated by aversion to risk, the US dollar rose on Tuesday, surrounded by bullish momentum, and approached the 107.30 level. During the first part of the trading day, the DXY index fluctuated in a range between 106.2 and 106.5. It then began to experience considerable purchasing pressure and reached a day high of over 107.2 during the US trading session. Escalating fears of economic slowdown in the Eurozone and the Russia-related energy crisis continued to boost demand for the safe-haven dollar, as the Russian gas giant Gazprom is supplying roughly 20% of its normal natural gas supply. The market’s attention will now move to the Fed’s monetary policy statements.

The GBP/USD exchange rate declined by 0.12% on Tuesday as the US dollar strengthened across the board. Investors continue to be anxious about the possibility of a worldwide recession, which has eclipsed the likelihood of a 50 basis point (bps) rate hike by the Bank of England in August. In the late European session, the GBP/USD pair plummeted to a daily low below the 1.197 level before regaining upward momentum to recover the majority of its daily losses. In the meantime, EUR/USD sustained significant losses yesterday and retested its daily low near 1.010 throughout the US trading session. EU nations also agreed to limit gas consumption during the upcoming winter. The pair fell over 1% for the day.

As investors await additional direction from the Federal Reserve’s monetary policy meeting, gold was little changed with a 0.10% loss for the day after moving sideways in a narrow range below $1719 in the late US trading session. The White House stated on Tuesday that it would sell 20 million barrels from the Strategic Petroleum Reserve, causing WTI oil prices to drop to around $95 per barrel.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDCPI (QoQ) (Q2)09:301.9%
USDCore Durable Goods Orders (MoM) (Jun)20:300.25
USDPending Home Sales (MoM) (Jun)22:00-1.5%
USDCrude Oil Inventories22:30-1.121M

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