WAll Street rose for the second straight trading day as investors digested the central banks’ hawkish stance on monetary policy. Fed Chair Jerome Powell reiterated his determination to fight inflation in the last appearance before the Fed’s September 21 interest rate decision, making another 75 basis point rate hike in September almost a “done deal”. The European Central Bank hiked interest rates by 75 basis points to tame inflation, the largest hike on record. With inflation rising and growth slowing, cash flows could start pricing in the “stagflation” cycle for defensive assets.
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The Dow was up 0.6%, the S&P 500 was up 0.66% and the Nasdaq was up 0.6%. Eight of the 11 sectors in the S&P 500 closed higher, with financials and healthcare leading the gains as investors looked for defensive stocks. All major banks including JPMorgan Chase, Citigroup Inc. and Wells Fargo were up 2-3% while mega-cap tech companies were mixed. Apple fell 0.95% a day after the product release of the new iPhone 14 series.
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DocuSign (NASDAQ: DOCU) shares were up 18% after the close after beating earnings expectations. The company’s EPS was reported at $0.44 versus $0.42 estimated. Revenue grew 22% annually to $622.2 million.
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The ECB hiked interest rates by 75 basis points to 0.75% to combat strongly anticipated rising inflation. The central bank raised its inflation expectation to 8.1% for 2022, hinting at further rate hikes, but the data is conditional even as the eurozone faces major challenges to a possible economic recession due to the energy crisis and rising food prices.
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Asian futures markets are mixed, suggesting a mixed open. ASX futures were up 0.04%. Nikkei225 futures are down 0.53% and HSI is slightly down 0.02%. While Australian and New Zealand stock markets were boosted by Wall Street’s renewed optimism, Chinese equities continued to suffer from the country’s renewed Covid lockdowns, with the Chinese yuan under pressure for further depreciation to a key psychological level of 7.
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FX markets changed direction as the USD weakened. EUR/USD remained at parity levels after recovering from a daily low of 0.9925. USD/JPY edged up slightly below 144 after hitting daily high of 144.56. Commodity currencies like the AUD and NZD also faltered from session lows. However, the Canadian dollar rallied as oil prices rose, a day after the BOC hiked 75 basis points.
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Crude oil edged higher after a sharp one-day sell-off despite the largest inventory build in five months. US crude inventories rose 8.8 million barrels in the week ended September 2, well above the estimate of 2.0 million barrels. We could see the sell-off in oil markets come to a halt as the supply issue remains problematic. WTI futures were up 1% to $82.81 a barrel and Brent futures were up 0.5% to $88.43 a barrel.
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Gold prices remained under pressure on a strong US dollar, while copper rallied on a recovery in risk sentiment. Comex gold futures fell 0.54% to $1,718.6 an ounce. And Comex copper futures were up 2.81% to $3.53 an ounce.
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