The surprise 25bp hike from the Bank of Canada (BoC) yesterday sent shockwaves across the financial markets. BoC decision to resume its rate hikes after a two-meeting pause and the surprise 25bp from the Reserve Bank of Australia (RBA) a day earlier fueled the central bank hawks around the world and boosted the Federal Reserve (Fed) rate hike expectations as well.
As a result, the US 2-year yield, which captures the Fed rate expectations is under a renewed pressure above the 4.50% mark, while the US 10-year yield is around 3.80%.
The TSX gave back 0.36% yesterday, the S&P 500 rebounded lower by a similar amousummer’sm last summer peak levels, while the rate-sensitive Nasdaq dived 1.75.
But the Russell 2000, which has underperformed the S&P500 and Big Tech stocks since the bank crisis, jumped almost 2.50% yesterday, after a 2.70% gain recorded the day before as a sign that the rally in Big Tech has certainly gone too far, and there is some rebalancing happening in the portfolios.
In the FX, the US dollar consolidates near the highest levels since mid-March, but hawkish bets for other major central banks keep the dollar’s upside potential limited at the current levels.
In Turkey, the lira lost 7% against the US dollar yesterday, as the Treasury and Finance Ministry, under the leadership of freshly appointed Mehmet Simsek asked the central bank to wane its FX interventions.
Gold is testing the 100-DMA, near the $1940 level, to the downside and the selloff could accelerate if support is taken out, while US crude recovered past the $73pb yesterday as the EIA data revealed a surprise 500K barrels decline in US crude inventories last week. But rising rates, tightening financial conditions and rising recession worries are bearish for oil.
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