Early Morning Call: rising yields hit stocks; watching USD; oil volatility ahead

Indices outlook

Indices in the Asia-Pacific region fell overnight, following US indices’ negative performance.

The Wall Street fell by 1.56%, US 500 by 2.01%, and the US Tech 100 by 2.98%. In Japan, Japan 225 ended the session 0.96% lower. Retail sales in the country rose by 3.6% in May year-on-year, compared to economists’ expectations of 3.3%. Consumer confidence in Japan fell to the lowest since January 2021. Australia fell 0.94%. Retail sales also beat expectations, rising by 0.9% in May month-on-month, as consumers spent more on eating out and in department stores, suggesting demand is proving resilient in the face of surging inflation and rising interest rates.

In Europe, major indices managed to end Tuesday’s session higher, but are down this morning. Yesterday evening, the French government cut its 2022 gross domestic product (GDP) forecast to 2.5% from 4%.

Currencies

On the currency market, the US dollar is giving back some of the gains realised yesterday afternoon. The dollar index is once again trading above 104.

Currency traders are awaiting the joined intervention of European Central Bank (ECB) president, Christine Lagarde, Federal Reserve (Fed) chairman, Jerome Powell, and Bank of England (BoE) governor, Andrew Bailey, at the ECB forum in Lisbon this afternoon.

Potential moves on the currency market could happen at the release of the latest consumer price index in Germany at 1pm UK time, and the final reading of US GDP for the first quarter at 1.30pm.

On the FTSE 100, Mulberry reinstated its final dividend, as the luxury group reported a 32% increase in revenue and profit before tax of £21.3 million, a fivefold increase on 2021.

Over in the US, watch out for General Mills Inc and Bed Bath & Beyond Inc as both are expected to report quarterly earnings before the market open.

Tesla Inc announced overnight that it is closing its office in San Mateo, California, and eliminating an estimated 200 jobs there as part of a broader cost-cutting effort at the business.

Commodities

On the commodity market, Oil - US Crude and Oil - Brent Crude hit two-week highs overnight.

Yesterday evening, the latest API data showed that crude oil inventories fell by 3.8 million barrels last week. Gasoline stocks rose by 2.85 million barrels, and distillates inventories increased by 2.6 million barrels.

This afternoon, the EIA is due to report two weeks worth of inventory data. Last week it was unable to do so because of technical difficulties.

Oil traders are also gearing up to tomorrow’s OPEC+ meeting. US president, Joe Biden, is counting on OPEC countries to produce more oil, but earlier this week, on the sidelines of the G7 meeting, French president Emmanuel Macron told his US counterpart that UAE was already producing at maximum capacity, and a Saudi Arabian output increase would be limited.