As markets take a respite before what is building up to be a busy week with numerous central bank meetings, certain risk assets had some relief on June 14, with the Aussie, Kiwi, and Sterling among the prominent gainers.
The central bank meetings ahead are the Federal Reserve on June 15, the Bank of England (BoE) on June 16, and the Bank of Japan (BoJ) on June 17.
The Federal Reserve’s raise of 50 basis points (bps) may not be sufficient to calm market fears of an impending inflation freight train.
The full Treasury yield curve has roared higher on fears that rates will have to rise far higher than expected to level out inflation. The US Dollar has been supported by the increase in US rates.
The standard 10-year note is yielding its best return in 11 years, priced at 3.44% in the United States session and 3.30% in the Asia session on June 14.
The yield curve for the 5/30s has dropped to its lowest point since 2000 in September. This confirms market concerns that rates will have to be raised so quickly in the near future that the economy will suffer long-term consequences.
The Bank of England (BoE) is dealing with a faltering economy while also dealing with inflation that is quite excessive. Market expectations for a 50-basis-point rate hike from them have not changed.
On the other hand, after changing its yield curve control (YCC) earlier on June 14 to widen the range of maturity further than the 10-year Japanese Government Bonds it was targeting before, the Bank of Japan (BoJ) has agreed to purchase more Japanese government bonds (JGBs) on June 15.
The Bank of Japan has announced that it will acquire JGBs in the ultra-long section of the yield curve in an unannounced action. On June 14, the 30-year yield on Japanese government bonds hit 1.26%, the highest point in a 6-year period. Upon hitting a 24-year high of 136.19 on June 13, the USD/JPY has been stable below 135 since.
Thus, although the Fed and the Bank of England are expected to tighten, the Bank of Japan appears to be sticking to its ultra-easy monetary policy. Generally, equity markets are under duress, although futures indicate that the European and North American cash sessions will start with a minor gain.
Upon resuming from a Monday break and getting up to speed with the chaos, Australia’s ASX 200 was hammered, falling more than 5% at one point. By contrast, commodity markets are rather calm, while agriculture prices are lower due to fears of demand disruption.
Bitcoin (BTC) has been affected by risk aversion as well. On June 14, it has fallen below $21,000.
Crude oil is also holding stable, with supply issues partially countered by China’s restrictions and fears of a recession. Gold has gotten stale overnight, but has maintained steady in Asia, changing hands at about US$ 1,825/oz.
Following the German CPI issue and the data for UK jobs and unemployment, the US will release its PPI figures.
On June 14, the DXY has surpassed last month’s high to set a new 20-year high. The upcoming historic high that could provide resistance is 109.77, which was set in September 2002.
All short, medium and long-term Simple Moving Averages (SMAs) have positive slopes, indicating that momentum is bullish.