Daily Wrap Up 18 August 2022

18 Aug 2022 05:05 PM

Hawkish Daly boosts USD

Stock markets in Europe bounced back today as last night’s Fed minutes contained some dovish nuggets. The update made it clear the Fed are going to continue down the path of lifting rates, but the central bank also predicts that unemployment will tick up in the second half. Some policymakers feel smaller rate hikes would be more appropriate at some point, and that supported equity markets. US index futures were pointing to a higher start but the hawkish commentary from Fed member, Mary Daly, took some of the dovish shine off last night’s minutes. Daly declared the war on inflation is not over and that a hike of 50-basis points or 75-basis points are both viable options at the September meeting. The remarks from Daly weighed a little on US stocks, but the S&P 500 has since turned higher.

The US Philly Fed manufacturing report swung from -12.3 to 6.2, its highest reading in four months. It easily beat the -4.9 forecast too. US jobless claims slipped to a five-week low of 250,000, undershooting the 265,000 consensus estimate. Ahead of the reports, traders were fearful the Philly fed number would be brutal given that earlier this week, the New York Fed manufacturing reading was the second largest monthly fall on record. Today’s updates bode well for the health of the US economy, and it helps the argument the Fed will might look to do a large hike next month. The US dollar index is up 0.3%.

The euro is weaker across the board even though Isabel Schnabel, an ECB member, said the bank is considering another large rate hike next month. The ECB are playing catch up because they began their hiking cycle in July, while the BoE and the Fed started in December and March respectively. It is not exactly a surprise the ECB are mulling a large hike because it was confirmed today that CPI in the euro area is 8.9%, a record high.

WTI and Brent crude are higher due to future supply concerns from Russia. Yesterday’s massive fall in US energy stockpiles suggests that gasoline demand is high. Gold and silver were up a few hours ago as bargain hunters entered the fold, but the sharp rally in the US dollar following Daly’s comments pushed the metals into negative territory.

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