Headlines:
- ICYMI: The market now expects the Fed to hike by 75 bps tomorrow
- The post-ECB fallout in European bond spreads continues
- SNB to keep policy unchanged this week, to only hike rates in September - Reuters poll
- ECB's Knot: A real possibility that rate hikes will continue in October and December
- RBA's Lowe: Australians need to be prepared for higher interest rates
- UK May claimant count change -19.7k vs -49.4k expected
- Germany May wholesale price index +1.0% vs +2.1% m/m prior
- Germany May final CPI +7.9% vs +7.9% y/y prelim
- Germany June ZEW survey current conditions -27.6 vs -31.0 expected
Markets:
- CHF leads, AUD lags on the day
- European equities lower; S&P 500 futures up 0.2%
- US 10-year yields down 5.3 bps to 3.316%
- Gold up 0.2% to $1,822.32
- WTI crude up 0.7% to $121.83
- Bitcoin down 5.9% to $21,845
The rout in markets took a bit of a breather in European morning trade today but there are still some nervous undertones persisting, as equities turned lower and the dollar regaining its footing after a softer start.
The bloodbath yesterday looked to calm down at first with US futures pushing gains of over 1% and European indices also opening higher across the board. But fast forward a few hours later and the mood has flipped around as European stocks are sitting in the red while US futures have nearly pared all of its advance from earlier.
The only relief is seen in long-end Treasuries, as yields settle lower for the time being. That said, there is still a bit of a push and pull and it is tough to draw much conclusions before US traders come in later in the day.
The dollar was initially softer to start the session but gradually reestablished its authority for the most part as risk appetite gets sapped.
EUR/USD moved up to 1.0485 before falling back to settle around 1.0430-40 levels, with USD/CHF having earlier dipped by 1% to 0.9875 as the franc gained with traders trying to figure out the SNB's intentions later this week. The latter pair has recovered some ground back to 0.9935 currently.
Meanwhile, there wasn't much reprieve for cable as it slumped to 1.2065 from 1.2200 at the start of European morning trade. Sellers continue to eye the 1.2000 level and it looks to be a matter of time before we get there.
Elsewhere, AUD/USD also tumbled from 0.6970 to 0.6885 as the dollar steadied and risk sentiment waned during the session.
As things stand, the market now expects the Fed to hike by 75 bps tomorrow. That is something that policymakers haven't really given a clear message on but they are likely to still deliver on that regardless (considering the Fed's recent history with being bullied). The kicking and screaming may not be over and done with if market players are vindicated for their moves this week.
