Daily Wrap Up 16 May 2022

16 May 2022 04:36 PM

China data dents mood

The latest data from China highlights the impact of the lockdown in Shanghai – the country’s largest city. Retail sales contracted by 11.1% in April compared with one year ago, which was a sharp decline from the -3.5% recorded in March. The unemployment rate ticked up from 5.8% to 6.1%, its highest mark since the pandemic began. Traders used the reports as an excuse to sell stocks, especially when you take into consideration the impressive gains that were registered last Friday. The DAX and the CAC are down 0.8% and 0.4% respectively. A rally in commodity stocks is helping Britain’s FTSE 100 as Glencore, Fresnillo, Shell and BP are in positive territory. Even though US equities are in the red, the losses are nothing like what we witnessed in the middle of last week. The US 10-year yield is a little lower and that appears to be why US markets are not falling though the floor. Recent rounds of selling were driven by fears of higher borrowing costs, but those worries have faded for now. At the end of last week, the NASDAQ rallied over 3% - the top performer in the US. It is no surprise the tech-heavy index is the largest faller today, as it is off by 1.1%.

Gold has had a reasonably volatile session. This morning the metal traded below $1,800, printing a three-month low, but since then we have witnessed a rally. The yellow metal seems to be coming under pressure in the face of rising bond yields. Once of the reasons why the yellow metal jumped in 2020 and held up well in 2021 was because that interest rates were zero in several countries, and in turn that discouraged some investors from placing funds in bank accounts or purchasing government bonds. Now that several major central banks have hiked rates, yields have been on the rise and in turn that is making gold less attractive. In the past few hours, gold has edged higher due as the flight to quality play has assisted the asset.

The US dollar is holding up alright considering the dreadful Empire State manufacturing reading for April, the level was -11.6, the second worst reading since the early days of the pandemic. Chatter about a slowdown in the US economy has been doing the rounds lately and this report adds to those fears. François Villeroy of the European Central Bank cautioned that a weak euro would compound the bloc’s inflation problem, as a result the euro is higher versus most major currencies.

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