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European stocks settle lower on inflation concerns

 

Wednesday, July 06, 2022

The news shaping the markets today

Russia’s military launched a major offensive in Ukraine’s Donetsk region, with heavy artillery fire. The ongoing war sent WTI crude oil prices higher this morning.


Hong Kong’s S&P Global PMI declined to 52.4 in June, from 54.9 in the previous month, exerting some pressure on the HKD/USD forex pair.


Brazil’s S&P Global composite PMI climbed to 59.4 in June, from 58 a month ago. Despite the country’s factory activity expanding for the 12th consecutive month, the BRL/USD pair declined in forex trading this morning.


US factory orders jumped 1.6% in May, following 0.7% growth in April. The latest reading surpassed market estimates of a 0.5% gain, sending the Nasdaq 100 index sharply higher on Tuesday.


Kuwait’s annual inflation rate eased to 4.52% in May, from 4.71% in the earlier month. Despite this, the KWD/USD forex pair remained under pressure.

 

What’s happening: European stocks recorded losses on Tuesday, after rising in the previous session.

What happened: Equity markets around the world had started the week on a positive note but failed to hold on to their gains on Tuesday.

Experts said investors are likely to buy value-based European stocks, as they reflect a higher-than-usual valuation discount to their US counterparts.

Why it matters: The STOXX 600 index started the week with gains, while markets in the US remained closed for the Fourth of July holiday. The pan-European index declined on Tuesday, in its worst session in more than two weeks, on rising inflation concerns. Oil and gas stocks led the decline, falling more than 6%.

Gas prices in Europe moved higher after Norwegian offshore workers started a strike, which is estimated to take approximately 90,000 barrels of oil and gas output offline.

The euro also fell to its weakest level in two decades amid economic growth concerns, with no sign of the Ukraine situation subsiding.

Investor sentiment was also hurt by economic data that showed Eurozone’s services PMI falling to 53.0 for June, from 56.1 in May. However, the figure still showed expansion in the services sector and was better than the projections of 52.8.

Shares of Dechra Pharmaceuticals plc rose more than 5% on Tuesday, after RBC Capital Markets upgraded its rating for the stock to Outperform. Shares of SAS AB fell around 10% after the airline filed for Chapter 11 bankruptcy protection in the US amid a pilot strike.

Germany’s DAX 40 and France’s CAC 40 shed 2.91% and 2.68%, respectively, on Tuesday. London’s FTSE 100 fell 2.86% to close at 7,025.47.

What to watch: Investors will keep an eye on the ECB’s monetary policy discussion, scheduled for Thursday.

Data on retail sales and construction PMI, due today, will also remain in focus. Retail sales in the Eurozone, which contracted by 1.3% in April, are expected to grow 0.4% in May. The S&P Global construction PMI is expected to improve to 49.7 in June, from 49.2 in the previous month.

The markets today

The Australian Dollar will be in focus today following the Reserve Bank of Australia’s policy decision

Context: The AUD/USD forex pair recorded sharp losses on Tuesday after the country’s central bank raised interest rates.

Details: The RBA tightened its monetary policy on Tuesday, raising the overnight rate by 50 basis points to 1.35%, the highest since May 2019. The latest move represents the third consecutive month of rate hikes.

Traders remained concerned, however, about the global economic growth prospects. The ongoing Russia-Ukraine war and covid-19 cases in China have fuelled economic growth concerns, sending commodity prices lower, which in turn exerted pressure on the resources-heavy Australian currency.

The AUD/USD forex pair was also impacted by a spike in the US dollar to a new 20-year high. The pair tried to climb initially in the session but gave up gains quickly.

The AUD/USD declined by around 1% to 0.6802 on Tuesday. The forex pair made a recovery this morning, rising by more than 0.1%.

What to watch: Traders await the release of minutes from the latest US Federal Reserve meeting, due today.

The release of Australia’s economic data on services index and balance of trade, scheduled for Thursday, will remain in focus.

Other Markets: US indices closed mixed on Tuesday, with the Dow Jones index down by 0.42%, and the S&P 500 and Nasdaq 100 higher by 0.16% and 1.68%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 135.15 and 135.24 Negative
NZD/USD – 0.6167 and 0.6178 Positive
Nasdaq 100 – 11760.68 and 11791.13 Positive
France’s CAC 40 – 5781.29 and 5799.41 Positive
Gold – 1767.35 and 1770.75 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0266, 0.01%) Dow ($30,855, -0.26%) Brent ($103.56, 0.8%)
GBP/USD (1.1964, 0.05%) S&P500 ($3,825, -0.25%) WTI ($99.66, 0.2%)
USD/JPY (135.32, -0.40%) Nasdaq ($11,789, -0.17%) Gold ($1,767, 0.3%)

What else to watch today

Germany’s factory orders and construction PMI, ECB’s non-monetary policy meeting, Spain’s industrial production, France’s construction PMI and retail sales, Italy’s construction PMI, UK’s construction PMI, Mexico’s gross fixed investment, as well as US MBA mortgage market index, Redbook index, services PMI, composite PMI, ISM services PMI, job openings, total vehicle sales, Logistics Manager’s index and API’s crude oil stocks.


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