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Daily Wrap Up 30 September 2022

30 Sep 2022 05:05 PM

Equities gain, USD rallies, gold shines

Stock markets in Europe closed higher today following a difficult week, as the drop in UK, German and French bond yields supported equities. The rebound today needs to be put in context with the major losses seen earlier this week, where the DAX dropped to its lowest mark in almost two-years. A few hours ago, tensions surrounding the Russia-Ukraine conflict increased as Moscow declared that four regions of Ukraine, which are under its control, are now under Russian sovereignty. The Russian government has previously threatened nuclear war if of its territory comes under attack, so the ante has been upped. Despite the elevated tensions, European equities held onto their gains.

Optimism is doing the rounds in the US as the major indices are all up and that coincides with the US 10-year yield falling back to 3.73%, which is a sizeable drop from the 4% that it printed earlier this week – its highest level in 14 years. The dip in US yields comes even though the core US PCE reading edged up to 4.9%, from 4.7%. The report is the Fed’s preferred measure of inflation and seeing as it is rising that suggests that domestic demand is still strong, which is good for the economy, but it could prompt the Fed to keep tightening rates at an aggressive pace. Sticking with the inflation topic, eurozone CPI increased to a new record high of 10%. The previous level was 9.1% and economists were anticipating 9.7%. Considering that inflation keeps rising, it is more likely the ECB will feel the need to keep lifting rates. The US dollar index is up on the session as it is clawing back some of the ground it lost during the week. Sterling is largely higher again as some stability has returned to the currency following the severe losses in saw at the start of the week.

Brent crude and WTI continue to see volatility ahead of next week’s OPEC+ meeting as there is chatter the body will announce production cuts. Gold up over 0.7% as the fall in bond yields as paved the way for a rally in the yellow metal.

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