11th of April 2022 - Markets choppy as recession risks climb.



Market Headlines

US stocks closed mixed Friday, with tech stocks suffering on the last day of the week as markets geared up for a tighter monetary policy from the Federal Reserve to fight the impact of inflation. The S&P 500 declined 0.3% to 4,488.28, the Dow Jones Industrial Average was 0.4% higher at 34,721.12 while the tech-heavy Nasdaq Composite fell 1.3% to 13,711.00. For the week, the S&P 500 was down 1.3%, the Dow fell 0.3% and the Nasdaq declined by 3.9%. Technology and consumer discretionary were the biggest decliners, while energy and financials led gainers. The US 10-year yield rose by 5.9 basis points to 2.71%. It earlier touched 2.73%, a new three-year high. The week's drop also comes ahead of the start of US companies' financial results for Q1, a tumultuous quarter that was dominated by headlines about COVID-19, Russia's attacks on Ukraine, inflation and supply-chain issues.


The intraday sector positioning and the surge in yields are in line with the March meeting minutes of the Federal Open Market Committee, released earlier this week. They signalled one or more 50 basis-point interest rate hikes in the months ahead and the shrinking of the Federal Reserve's portfolio of securities by $95 billion a month to tackle strong inflationary headwinds in the US.


Currencies

AUD/USD pair extended this week's sharp retracement slide from the YTD peak levels just above mid-0.7600s and witnessed some selling for the third successive day on Friday. The downward trajectory dragged spot prices to a two-and-half-week low, around the 0.7440-0.7435 region during the session. Hawkish Fed minutes along with continued rise in bond yields saw the Greenback move higher.


USD/JPY clings to 124.00 as bulls aim to break the YTD high at 125.10.


EUR/USD dropped to its lowest level in a month below 1.0850 on Friday but managed to stage a rebound amid week-end flows. Nevertheless, the pair is down more than 100 pips since the beginning of the week and remains on track to register its lowest weekly close since May 2020.

The dollar index rose 0.2% to 99.99. It briefly traded above the 100 mark earlier in the session, its highest level since May 2020.


Currency ranges over the last 24 hours



Market Outlook

A spike in volatility last week spooked markets out of tech as we may see a continuation in volatility heading into the Federal Reserve upcoming policy decision in May. Economists see a growing risk of recession as the relentlessly strong U.S. economy whips up inflation, likely bringing a heavy-handed response from the Federal Reserve.

Economists surveyed by The Wall Street Journal this month on average put the probability of the economy being in recession sometime in the next 12 months at 28%, up from 18% in January and just 13% a year ago.

Risk of a recession is rising due to the series of supply shocks cascading throughout the economy as the Fed lifts rates to address inflation.

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Disclaimer

This material is provided by Navigate Global Payments (Navigate) ACN 615 699 888, AFSL 502711.  The material contains general commentary only and does not constitute investment or any other advice.  Certain types of transactions, like futures, options and high yield securities can be risky, and not suitable for all investors.  This information has been prepared without considering your objectives, financial situation or needs.  Please seek your own independent legal or financial advice before proceeding with any investment decision.  The information is believed to be accurate at the time of compilation and is provided in good faith.  Navigate does not warrant the accuracy or completeness of any information contributed by a third party. The information is subject to change without notice and Navigate is under no obligation to update the information. The information contained in this material are opinions of the author at the time of writing and does not constitute an offer, recommendation to act, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter a legally binding contract.  This information, including any assumptions and conclusions is not intended to be a comprehensive statement of relevant practise or law that is often complex and can change.  Past performance is not a reliable indicator of future performance. Any forecasts given in this material are predictive in character.Navigate Global Payments Pty Ltd nor its related parties or officers accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the information contained or related to this site.