STATE OF THE MARKETS

Dollar tumbled as the ECB raised rates. While US stocks climbed higher on Thursday, ECB in a historic move raised rates by 75 basis points to combat inflation. Dow (+0.61%), S&P (+0.66%) and Nasdaq (+0.60%) including Russell (+0.81%) finished in the green as the Dollar was sold and settled near the 109.50 mark. In early Asian trading, the Dollar was on a free fall to the 108.80 barrier in support of the Euro as the Italian 10Y (3.95%) yield spreads over 65.5 basis points than the US10Y (3.29%).

In the commodity markets, Dollar weakness and short covering helped float crude oil to close above $82.30/bl while gold pulled back below $1,705/oz as traders positioned themselves ahead of the Fed’s meeting in two weeks time. Elsewhere, iron ore climbed further to $98.40/tn on Dollar weakness.

In the FX space, sentiments remained bearish as Swiss reign in the helm of demand for the short and medium term while advancing further in the long term demand territories. Short and medium term accounts were quick to sell the overbought Dollar in favor of Euro, Aussie and Loonie. 

On Friday, markets expect to weigh the ECB surprise decision against the Federal Reserve as the two economies vow to combat inflation. Earnings and economic data releases to watch includes Kroger (KR) and ABM Industries (ABM) as well as the latest US wholesale inventories to gauge demand in the economy.

OUR PICK – No New Picks

No new picks going into the weekend. At this point markets are expecting the Feds to pause rates at the 3.75%-4% level to gauge the impact on inflation before deciding the next course. As of Friday, the market is pricing 86% probability of a 75 bps hike in two weeks, a point less than Thursday, hence the Dollar fall. Investors seemed to front load in equities, hence the relief rally, but we see the Q3 earnings adjustments coming in the next few weeks and September being seasonally the worst month for equities are good reasons to stay on the sideline for now. Afterall, weekly flows are still negative in equities (-$4 billion).

Trades updates: 

Equities:  Other than T (8% undervalued, 6.62% yields) that continue to free fall, M (47% undervalued, 3.58% yields), AUY (22% undervalued, 2.64% yields), CRON (24% undervalued with 27.82 z-score), WBA (35% undervalued, 5.34% yields) and VIPS (37% undervalued with 4.73 z-score) however, joined the relief rally.

FX & Commodities:  GBP/JPY was stopped out after reaching medium term TP1, NZD/JPY was stopped out, NZD/CHF reached medium term TP1, EUR/CAD reached medium term TP2 and we remain bullish XAU/USD for the long term.

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Disclaimer:

This article is for general information purpose only. It is not an investment advice or a solicitation to buy or sell any securities. Opinions expressed are of the authors and not necessarily of MFM Securities Limited or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.