US dollar came back strong
The U.S. dollar concluded Monday’s trading session with significant gains after beginning the day on the back foot. The U.S. dollar initially declined in response to news emanating from China, as many districts began lowering their restrictive COVID-19 policies. There is also market chatter pointed to additional softening in January.
Ahead of the European Central Bank’s (ECB) meeting in December, policymaker Gabriel Makhlouf stated that a 50 basis point rate rise is the bare minimum, adding that he would not rule out a 75 basis point boost. The ECB and the Fed will publish their rate conclusions on December 15th and 14th, respectively. Officials will enter their blackout period on Thursday.
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EUR/USD traded at 1.0480, while GBP/USD fell to the region of 1.2160. Commodity-linked currencies were also under intense selling pressure, with the AUD/USD battling near 0.6670 and the USD/CAD approaching 1.360.00. The dollar strengthened against safe-haven peers, with USD/JPY returning to the 136.70 zone.
Inflation fuelled fears smash stocks downward
The S&P 500 declined on Monday as more data indicating additional symptoms of inflation pressure impacted on confidence ahead of next week’s Federal Reserve meeting. The S&P 500 declined 1.9%, while the Dow Jones Industrial Average declined 1.4%, or 472 points, and the Nasdaq declined 2.0%.
In November, the activity of services, a sector of the economy identified by the Fed as a significant contributor to inflation, increased more than anticipated. This sparked fresh fears about more aggressive Fed monetary policy measures.
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ISM services data for November jumped to 56.5, well above estimates of 53.3. Treasury yields for US 10Y climbed as investors weighed the likelihood of higher for longer interest rates to curb inflation. This put pressure on market growth sectors such as tech and consumer stocks.
Tesla slumped 5% on reports that the electric vehicle manufacturer may reduce Model Y output at its Shanghai Gigafactory by more than 20%. VF Corporation also weighed on consumer stocks by falling more than 8% after issuing a profit warning for the second half of the year. The company also announced the departure of its chief executive.
Bad day for commodities fuelled by OPEC+ and strong greenback
Crude oil prices soared at the beginning of the day almost 3% as Chinese news about easing Covid restrictions signal stable demand. Also OPEC+ declared its decision to keep its policy. OPEC+ will keep lowering oil output by 2 million barrels per day. The current EU resolution to restrict oil prices was another factor dragging on oil prices.
Moscow stated that it will not accept the price ceiling and is formulating a decision. Early in the US afternoon, the price of black gold began to decline sharply in response to the wide USD rise.
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Futures contracts for January delivery of West Texas Intermediate Crude Oil finished down $3.05, or 3.8%, at $76.93 a barrel. Brent crude for February trading in London closed down $2.46, or 2.9%, at $88.43.
Gold soared to $1,810 a troy ounce at the beginning of the day but dropped on fresh USD demand and closes the day at $1,766 troy ounce. Silver however, started the day with a decline and stayed on its path down, closing around 22.392 or 0.85 which is 3.65% in the red.
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