Daily Wrap Up 27 May 2022

27 May 2022 04:17 PM

Bullish sentiment dominates

It has been another bullish run for equity markets in the US and Europe as traders are less fearful about the possibility of an extremely hawkish Federal Reserve. This day last week, the S&P 500 and the NASDAQ 100 fell to 15 month and 18-month lows respectively, due to worries the Fed might look to carry out several 50 basis points hikes this year. On Wednesday, the minutes from the latest Fed meeting were posted and even though it suggested that rates might be hiked by 50 basis points next month and in July, the tone wasn’t as hawkish as initially feared. That sparked a wave of buying in the past two days. As stated above, US equities were under a lot of pressure last week but now bargain hunters has swooped in as the overall mood has lightened, hence why the S&P 500 hit a three-week high.

A few hours ago, the US core PCE reading was posted, and it cooled from 5.2% to 4.9%. The reading is the Fed’s preferred measure of inflation, and the fact that it retreated adds weight to the view the Fed will not be overly aggressive when it comes to lifting interest rates in the months ahead. Personal spending in the US cooled from 1.4% to 0.9% in April, in addition to that, personal income slipped from 0.5% to 0.4% - its lowest level in three months. It is a little concerning that wages and spending are going down a notch as that speaks to a cooling of the economy. Bond yields are moving lower, which reflects the view that bond traders are no longer expecting multiple large rate hikes in the months ahead. As a result of the slip in the US 10-year yield, the US dollar is a touch lower again. EUR/USD and GBP/USD have set new one-month highs, while the AUD/USD printed a three-week high.

The dip in the US dollar continues to help gold and silver as the inverse relationship between the currency and the commodities remains strong. Gold is underperforming silver because it seems the wider bullish mood in stock markets has taken some of the shine off the yellow metal.


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