Market Commentary – May 04, 2022

Kevin Jock

4th May 2022

U.S. stocks ended slightly higher on Tuesday, with all three major indices (Dow / Nasdaq / S&P 500) rose 0.2%, 0.22% and 0.48% respectively. The overall trading volume are below the historical averages as traders are making some last-minute adjustments before the Fed’s announcement in this evening, where the market participants are expecting a 0.5% increase of interest rates. Bond yields have already climbed significantly for the past weeks in anticipation of Fed tightening.

European equities also advanced yesterday after upbeat earnings report, particularly with bank stocks as government bond yields hit fresh highs. The oil and gas companies are also the winners as the sector rose 4.1% on the back of strong performance from BP. Meanwhile, in terms of the War in the East, Russian military fired 18 missiles to strike Ukraine railway infrastructure on Tuesday evening, in the hope of disrupting weapon supplies provided by the western allies.

In Asia, both the Australia’s ASX 200 and Japan’s Nikkei 225 indices closed the day flatlined today, as investors from both markets are waiting for the interest rate decision from the Fed, while Hong Kong’s Hang Seng Index dropped 1.1% to close the day below 21,000 points. Meanwhile, HK’s economy shrank 4% in the first quarter compared to a year ago, due to restrictions imposed to deter an outbreak of the pandemic which has hit the local businesses severely. However, the serious COVID situation has greatly eased as the number of new cases reduced to less than 300 per day.

Brussels will propose a stepwise embargo on imports of all Russian oils in order to punish Moscow for its invasion of Ukraine. Price of brent crude jumped 3% today to currently trade at $108.62 per barrel. Bullion prices remain flat today at $1,868.05 per ounce, while bitcoin price shot up today to test the resistance at $39K, we will see how it performs during tonight’s Fed meeting.

GBPUSD charts (2022.5.4)

Figure 1 (Source: IS Prime) GBP/USD daily: Sterling is struggling to appreciate against the greenback despite imminent rate hikes from the BoE. Instead, cable has dipped dramatically in recent days to $1.25085 as the U.S. dollar rallied, backed by the hawkish Fed.

Headliner to Review

  • The Reserve Bank of Australia (RBA) hiked interest rates by 25 bps to 0.35%, which has surprised the market because the expected figure is an increase of 15 bps. The central bank has also signalled more rate hikes and now the market is seeing the year-end cash rate at 2.8% instead of 2.6%.
  • The figures of the U.S. JOLTS Job Openings survey found 11.55M positions were available at the end of March, an increase of 205K from February as the number of people who quit their jobs reached an all-time high. Most job openings were in both the retail trade and durable goods manufacturing sectors.

Headliner to Watch

  • The U.S. Fed is expected to raise interest rates by 0.5% at the policy meeting in this evening, such rate hike is already priced into financial markets, and which would be the largest rise in the U.S. benchmark rate in over 20 years as wild inflation somewhat forced the central bank to act promptly.
  • We are also expecting the Bank of England (BoE) to hike the benchmark rate by 0.25% to 1%, matching its highest level since early February 2009, during the incoming May’s MPC meeting which would be the fourth successive increase in bank rates.

Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice.

Authors:
Antony Tan
Kerry Man