U.S. Stocks Advance Overcoming Rate Hike Worries, Oil Plunges 6%

Barry Adams
07 Sep, 2022
New York City

Stocks on Wall Street advanced after crude oil prices plunged nearly 6% easing pressure on high inflation. 

For today, investors set aside the worries of a larger rate hike later in the month after crude oil prices plunged. 

The sharp fall in the oil stoked the optimism on Wall Street investors bid up recently beaten down tech stocks. 

However, central banks are set to lift rates this month with the focus on the U.S. Federal Reserve and the European Central Bank.  

The European Central Bank is set to lift its key lending rate by as much as 75 basis points on Thursday and the U.S. Federal Reserve is expected to match the hike at its next two-day policy meeting ending on Sep 21.

Two days ago, as expected the Reserve Bank of Australia hiked its key lending rate by 50 basis points to 2.35%. 

The latest hike follows three increases of similar size in the previous three months and 25 basis points increase in May, lifting the rates to the levels last seen in January 2015. 

The Bank of Canada lifted its overnight lending rate by 75 basis points to 3.25%, meeting the market expectations. 

The latest rate hike is the fifth consecutive increase in a row, lifting the lending rates to a high not seen since 2008. 

Crude oil prices declined in New York and in international markets on the falling demand worries and rising dollar. 

The oil price fell to the lowest level since Russia's invasion of Ukraine on February 24 on the worries that the economic slowdown may dampen the demand. 

Only a day ago in a nod to the decline in oil demand, the OPEC+ announced to cut its production target by 100,000 barrels a day. 

Futures of West Texas Intermediate crude oil declined 5.7% to $81.88 a barrel and natural gas eased 31 cents to $7.82 a thermal unit. 

The yields on 2-year notes fell to 3.41%, 10-year Treasury notes eased to 3.27% and 30-year bond fell to 3.42%. 

The S&P 500 index increased 1.8% to 3,979.83 and the Nasdaq Composite index advanced 2.2% to 11,791.90. 

 

Elevated U.S. Trade Deficit Eases In July 

U.S. trade deficit declined $10.2 billion to $70.7 billion in July, the Bureau of Economic Analysis reported Wednesday. 

Total exports rose 0.2% to record $259.3 billion driven by higher service exports offsetting a decline in merchandise shipments. 

Total imports fell 2.9% to $329.9 billion after a decline in imports of industrial supplies and consumer goods offset an increase in shipments of automotive vehicles and parts. 

The deficit with China fell to $33 billion, a decline of $3.9 billion after exports rose to $12.8 billion and imports eased to $45.8 billion. 

 

European Markets Anticipate Rate Hike On Thursday

European markets advanced and energy prices in the region fell for the third day in a row. 

Investors are bracing another round of rate hike as central banks in the U.S., Europe and Asia target inflation in a coordinated fashion. 

The European Central Bank is set to lift its key lending rate by as much as 75 basis points and the U.S. Federal Reserve is expected to match the hike at its next two-day policy meeting ending on Sep 21.

The National Bank of Poland lifted its key lending rate by 25 basis points to 6.75%, marching the market expectations. 

The DAX index increased 0.4% to 12,915.97, the CAC-40 index rose 0.02% to 6,105.92, and the FTSE 100 index fell 0.9% to 7,237.83. 

Brent crude oil prices fell 4.9% to $88.26 a barrel and TTF gas prices plunged 11.4% to 213.81 euros a megawatt a hour.  

The U.S. dollar continued to rise and the euro dropped to $0.994 and the British pound eased to $1.147, the lowest in 37 years as investors anticipate inflation to accelerate and economic conditions to weaken. 

Rising current account deficit and dropping investor confidence has hammered the pound 15% against the U.S. dollar this year.   

The British pound is set to test its record low of $1.02 reached in February 1985. 

 

Eurozone GDP Growth Revised Higher 

The euro area economic growth was faster than previously estimated, according to the latest revision from Eurostat released Wednesday. 

Preliminary estimate was released on Aug 17. 

GDP growth in the second quarter was revised higher to 0.8% from 0.6% on a sequential basis. The economy expanded at a 4.1% from the previous estimate of 3.9% from a year ago. 

The  eurozone economy in the first quarter rose 0.7% from the previous quarter and jumped 5.4% from a year ago. 

German industrial production fell 0.3% in July after rising 0.8% in June, Destatis reported Wednesday. 

Industrial production declined 1.1% after easing 0.1% in June on an annual basis, 

In stock trading, resource stocks led the decliners after Brent crude oil prices fell 4.9% and natural gas prices dropped 11%. 

Glencore, Anglo American, Antofagasta and BHP Group dropped between 2% and 3%. 

 

Asian Markets Turn Lower On Recession Worries 

Asian markets in Wednesday's trading turned lower on recession worries despite the falling energy prices for the third day in a row.  

Indexes in China closed marginally down after export growth slowed to 7.1% in August from 18% in July, General Administration of Customs in Beijing said Wednesday. 

Import growth fell to 0.3% in August from 2.3% in July. 

The Shanghai Stock Exchange Composite Index inched up 2.85 to 3,246,29 and the Hang Seng Index fell 0.8% to 19,044.30. 

In Tokyo, investors focused on the rapid decline in yen for the third day in a row. The yen dropped 1% to 144,32, prompting Finance Minister Shunichi Suzuki to caution that the government will be ready to act, if needed. 

The Nikkei 225 Index fell 0.7% to 27,430.30 and the broader Topix declined 0.6% to 1,915.65.

With weak markets in Asia and Europe, popular indexes in India eased in the final hour of trading on Wednesday. 

The Sensex closed down 168.08 points or 0.28% to 59,028.91 and the Nifty index declined 31.20 points or 0.18% to 17,624.40

The KOSPI Index in Seoul, Korea declined 1.4% to 2,376.46 after the won dropped to a 13-year low of 1,377 against a dollar. 

Semiconductor makers and steel companies led the decliners in Seoul trading. 

In Sydney, Australia, the ASX 200 Index plunged 1.4% to 6,729.30 after energy and commodities prices eased. 

The Australian dollar dropped to a two-year low to $1.477 despite the Reserve Bank of Australian lifting its key lending rate by 50 basis points this week.