2022/05/05 (040) Column

A Bloodbath In The US Stock Markets Today
Heavy Losses – Gains Gone Since The Beginning Of The Week
10Y US Yield Jumped Towards 3.1% – A Level Not Seen Since Nov `18,
While The US Dollar Index Weakens Intarday, As FED Nixes Hawkish Hopes


Easy to win yesterday, much more easy to lose today!

After a strong recovery in the middle of the week, the US stock exchanges fell again massively on Thursday. And the meanwhile more than three percent increase in yields on ten-year US government bonds caused increased nervousness. In addition, productivity in the US economy fell more sharply than feared in the first quarter and fell more sharply than at any time since 1947. On the other hand, the fact that the number of initial applications for unemployment benefits rose surprisingly last week should hardly matter, because the level of applications for unemployment benefits remains low in a longer-term comparison.

However, at the close, the Dow Jones Industrial lost 3.12 percent to 32,997.97 points. This not only dissolved the gains from the previous day, but also those from the beginning of the week were almost completely wiped out. The US Federal Reserve (Fed) had set the key interest rate significantly higher on Wednesday, but at the same time put a damper on the possibility of even more significant hikes. Interest rate hikes of 0.75 percentage points, which were previously discussed on the markets, are therefore less likely, but experts now see this as a double-edged sword. Fed President Jerome Powell may have unintentionally set the course for further turbulence on the markets by not taking an even stronger interest rate hike in June, it was said, citing concerns about persistently high inflation. The S&P 500 fell 3.56 percent on Thursday to 4146.87 points. The tech-heavy Nasdaq 100 fell again to its lowest level in a little over a year, then closed 5.06 percent lower at 12,850.55 points, its biggest one-day loss since September 2020.

Oliver Roth (Oddo BHF):
“Be careful with investing at the moment – are in a bear market”

“At the moment you should be very careful when investing. We are in a bear market and will tend to see falling markets. I firmly assume that the 14,000 points on the Dax will not hold. Don’t be too heavily invested now, reduce a bit and then get into a correction,” says Oliver Roth. The capital market strategist at Oddo BHF Corporates & Markets said of the US Federal Reserve’s interest rate hike of 0.5 percentage points on Wednesday: “The US Federal Reserve changed course well ahead of the ECB. And we still have some breathing space when it comes to interest rate hikes.”

Dow, Nasdaq Suffer Worst Day Since 2020

The Dow lost over 1000 points on Thursday and the Nasdaq Composite sink almost 5%, their biggest daily drop since 2020, while the S&P 500 tumbled 3.6% as investors continue to bet on bigger interest rate hikes to rein on inflation and worry about its impact on growth despite Fed Chair Jerome Powell’s less hawkish tone. Falls were most pronounced in high-growth stocks, with Apple and other tech giants such as Amazon, Tesla, and Microsoft plunging between 4% and 8%. The market moves came after the Fed hiked its benchmark policy rate by half a percentage point for the first time since 2000, sending a strong signal that it intended to do so again at the next two meetings. All eyes next week turn to Friday’s nonfarm payroll report for further clues about the job market’s strength.

US Bond Selloff Resumes

The yield on the 10-year US Treasury note, which sets the tone for corporate and household borrowing costs worldwide, jumped towards 3.1%, a level not seen since November 2018, as investors digest the narrative of a looming policy tightening cycle against a backdrop of slowing global growth. The Federal Reserve hiked its benchmark policy rate by half a percentage point for the first time since 2000, sending a strong signal that it intended to do so again at the next two meetings. With inflation running at 40-year highs and the job market extremely tight, the Federal Reserve had no choice but to change the narrative and signal a faster tightening.Brent Crude Rises Back To 111 USD

Brent crude futures increased to trade near $111 a barrel in volatile trading on Thursday, following a 5% gain in the previous session, as investors weigh a looming EU ban on Russian oil while OPEC+ stick with only modest supply increases in monthly production. The EU has proposed an embargo on Russian crude in six months and refined products by the end of the year. The proposal also included a ban on all shipping, brokerage, insurance, and financing services offered by EU companies to transport Russian oil in a month. However, the plan still needs to be approved by all member states and some including Hungary andSlovakia already asked for a longer transition period. Meanwhile, OPEC+ decided to raise production targets by 432,000 barrels per day for next month, failing to supply additional oil into the market amid persistent concerns over weaker Chinese demand.