[Marchnad yr UD]Stocks fall, ISM stats warn of continued rise in interest rates – dollar in high 136 yen range-Bloomberg

The US stock market fell on the 5th. The unexpected rise in the non-manufacturing index of the Institute for Supply Management (ISM) has fueled speculation that the Fed will continue to tighten policy to curb persistent inflation.

About 95% of stocks in the S&P 500 stock index fell. The selloff spread across a wide range of industries. Tesla fell 6.4%.In the Shanghai factory in ChinaOfficials said the company plans to cut production. The Russell 2000 Index of small-cap stocks fell nearly 3%.

The US ISM non-manufacturing index rises unexpectedly

“Good economic news is bad news for stocks, as the risk that interest rates will be forced to rise further next year remains high,” said Ed Moya, senior market analyst at Oanda.

Markets were also weighed down by speculation that the S&P 500’s rally above key technical indicators last week was overdone given a range of economic risks.

Morgan Stanley strategist Michael Wilson, who is very skeptical of US equities, recently expected the rally to continue for the foreseeable future, but investors believe the rally is over.He pointed out that it is better to fix the profit. “We’re sellers again,” said Wilson and other strategists at the bank, who expected the S&P 500 to resume its decline last week above its 200-day moving average.

“Markets are likely to remain volatile. “Our view is that economic growth is likely to slow further next year as the cumulative effect of US rate rises weighs on activity.”

US Treasures

Treasuries of all maturities fell, with 10-year yields slightly above 3.6%. Market trends in the swap market suggest that expectations for the final rate where the US policy rate ends are also rising, peaking above 5% in mid-2023. The current guidance target for the interest rate of the policy is 3.75% to 4%.

foreign exchange

In the foreign exchange market, the dollar is bought and appreciated against most of the 10 major currencies. The ISM non-manufacturing business index indicated that the US economy would remain strong. On the other hand, the Yen sold off sharply, falling 1.9% against the dollar to 136.86 yen. US Treasury gains are yielding and moving to cut speculative yen long positions newly created on the market.

BBVA strategist Roberto Cobo said: “The dollar rallied to today’s highs after the data was released, but is it a sustainable rally or a temporary intraday gain, like last week’s jobs report? Not I don’t know yet if he will stay.” “In fact, the US economic cycle is relatively resilient to monetary tightening, which should prevent a sharp fall in the dollar at least through the December Federal Open Market Committee (FOMC) meeting,” he said.

“We have a very interconnected asset market right now,” said Brad Bechtel, currency strategist at Jefferies. Prices will rise and vice versa,” he said in an email. “As the release of the US Consumer Price Index (CPI) approaches, much of the movement seen in the past few weeks will begin to unwind somewhat as investors squared their positions ahead of the CPI.” continuation.

raw

Crude oil futures in New York plunged to their biggest drop in more than two weeks. Stock markets fell sharply and sharply, while risk averse investors cut oil positions before the end of the year.

Better-than-expected US economic data on Monday boosted expectations that the Fed will continue to tighten policy to fight inflation, pushing the dollar index higher. West Texas Intermediate (WTI) crude oil rose 3.4% at one point in the morning. He responded to China’s announcement to further ease coronavirus policies in some major cities. It also marked the first day of the $60 per barrel price cap set by the European Union (EU) and the Group of Seven (G7) for Russian crude.

News-related noise keeps traders away from the market, said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “There are a lot of traders who have taken a complete wait-and-see approach,” he said.

WTI futures for January delivery on the New York Mercantile Exchange (NYMEX) closed at $76.93 a barrel, down $3.05 (3.8%) from the previous trading day. ICE North Sea Brent February delivery fell $2.89 to $82.68.

Money

The New York gold market continues to fall. US Treasury yields and a stronger dollar are the reason. Traders are looking to new economic data for clues on future US interest rate policy, as well as assessing the status of China’s easing of its zero-corona policy.

The ISM non-manufacturing index rose unexpectedly in November, raising the possibility that interest rates will remain high for a long time. This is a negative for non-interest bearing gold. US Treasury yields and the dollar extended gains after the data release.

“There are signs of buying fatigue in the gold market, but there is clear price consolidation for investors following CTA trends to resume selling,” said Daniel Gurry, senior commodities strategist at TD Securities.