Oil prices have come under pressure. Oil prices have come under pressure. Oil prices have come under pressure.

Fed minutes confirm a restrictive policy path; low liquidity continues to feed volatility; Dollar still the king; commodities recover some ground

Equities 5 minutes to read
Saxo Be Invested
APAC Research

Summary:  The Fed’s focus on inflation has been late, but it does appear firmer now even if that means risks of an economic slowdown. Commodities making a comeback in the Asian session but low liquidity feeds volatility and further pressures cannot be discounted as speculative and technical traders keep the upper hand. Dollar remains the king and the ECB minutes scheduled today will be key for the euro. Samsung results lift Asia’s tech sentiment but outlook is still dire.

What’s happening in markets?

Big picture

US stocks rose for the third day as bond yields remain in month-low territory. We caution that there is too much overconfidence in the market as nothing has changed from a fundamental perspective - we have a rally in the bearish market. The Fed affirmed it will keep raising rates for longer to prevent surging inflation from being entrenched even if the economy slows. So that’s as hawkish as it gets. The Fed backed a hike of 0.5% points or another 0.75% points again. And dollar rose against every G-10 currency while the British pound (GBP) fell to a two-year low as the UK PM is being called upon to resign.

APAC equities remain steady

APAC equities were mostly in green on Thursday morning, with the exception of Hong Kong, after a positive close on the Wall Street. FOMC minutes did send some words of caution with aggressive tightening set to continue and more Covid breakouts in China continue to dampen sentiment as well. Japan’s Nikkei (NI225.I) was up by 0.7% as consumer staples and real estate sectors led the gains. Meanwhile markets were also steady with the oil price cooling back 13% in two days, alleviating some recessionary fears. This stocked fire into some industrial metals prices, supporting the ASX200 moving up 0.4% on Thursday, to collect a month-to-date gain of 0.74%. The mining sector is charging away today, up 1.2%. Standout stocks? BHP Spinoff South32 (S32) rose 3.4% after the aluminum futures price rose off its lows, in the hope that sentiment will improve. Iron ore/lithium play Mineral Resources (MIN) rose 3% and Rio Tinto (RIO) moved up 2.6% after the iron ore price attempted to rebound. On the downside today, tech suffered falling 1.3%, Industrials and Energy are also lower. Notably, EML Payments (EML) is down 9% and Zip (ZIP) is down 8%, with most of the tech gains from yesterday being given back as the short squeeze rally paused/ended. Investors are going back to basics, focusing on fundamentals, knowing tech businesses face steeper margin compression/drops in profits/earnings amid slower economic growth and rising interest rates. Singapore’s STI (ES3) was also in mid gains, led by Wilmar.

Commodities see another mixed day of trade; with ag mostly moving higher, while most industrial metals drag

  • Oil has now fallen 12% in total including yesterday’s move and trades at $98 a barrel. Oil has been the biggest contributor to inflation. One of the recent developments is that the US is weighing up possibly curbing shipping to slow oil demand. Brent fell below $100 for the first time since April. However as we wrote in the Q3 Outlook We think Brent oil could stay between $97-$125 range bound for the next few months until we see more positive news out of China.
  • Copper slide 0.2% to $341.80 and continued to trend low. 
  • Iron ore Price (SCOA) is rose 0.7% to $112. $103 is the next level of support it could fall too. If it breaks that $94-$96 level is the next levels of support.
  • Newcastle Coal futures move higher again for the fourth day in a row, implying Australia remains with critically low levels of supply and rising demand as Australia chills through the coldest July on record.
  • Most Ag commodities trade higher; The price of corn, sugar, wheat and live cattle all rose over 1%

Crude oil (OILUKSEP22 & OILUSAUG22) market is disconnected to the fundamentals

Pressure on crude oil accelerated overnight with Brent futures also below the $100/barrel mark now and WTI futures at $97/barrel, although some recovery was seen in Asia. Speculators and technical traders seem to have the upper hand right now, and the market stays away from reflecting its true fundamentals. We did have some supply concerns alleviated last night as U.S. API inventories surprisingly came in higher as against expectations of a drawdown. Demand destruction may be starting to make an impact, and the EIA report due today may have more light to shed. But we do not think the market will be in balance even with some level of demand destruction as supply concerns linger.

Dollar is still the king

The USD remains in the driving seat as equities and bonds struggle for a direction, and the DXY index climbed above 107 overnight. EURUSD now trades at sub-1.0200 levels and getting closer to parity with more room on the downside as the gas debacle has raised the possibility of a deeper recession. Eurozone construction PMI also fell yesterday, with both output and new orders falling at the fastest pace in 16 months, further adding to recession fears and making the task of ECB tougher. ECB minutes are due today and may be the next catalyst for the EUR.

Yen stuck in a range

USDJPY traded around 136-levels, as the yen weakness returned in the U.S. session. Reports suggested that the Bank of Japan may consider moving its inflation forecast higher at the next meeting, while revising down the growth forecast. This will further emphasize their accommodative monetary policy settings, which are a contrast to the global tightening wave.

What to consider?

FOMC minutes provide little new input

The FOMC minutes from the June meeting continued to reaffirm the Fed’s hawkish stance as the focus remains on fighting inflationary pressures even if that means an economic slowdown. Overall, there was little new to learn, but the market pricing for a 75bps rate hike for the July meeting picked up. It is important to keep in mind that the minutes were from the June meeting and the recession concerns have picked up materially since then. This means that the 50 vs. 75bps debate for July is still alive, but the bigger focus is on the path of rate hikes beyond that as economic slowdown will likely pick up pace by then. Key to watch is the payrolls data due this week and CPI due next week for further sense.

U.S. ISM services PMI still holding up well

The U.S. ISM no-manufacturing PMI for June edged lower to 55.3 from 55.9 in May, but came in above consensus of 54.3. The services side is still keeping the economy afloat, and that continues to provide room to Fed to continue to be aggressive in order to fight the inflation pressures. Still, the strength of the services sector is depleting fast, as the PMI was the third consecutive month of growth slowdown in US services industry and a 20-month low, so that again puts the focus back on Fed’s expected path beyond the July rate hike.

Apple said to be launching largest Smartwatch, steps up cyber security, and is asked to remove TikTok from App Store

Apple is said to be launching a new extreme sports model that could potentially rival a Garmin. It’s planned to be announced later this year with 7% larger screen than the largest Apple Watch. Separately, overnight it was revealed that Apple is offering a new optional feature for "extreme" security protection, called Lockdown Mode. It’s for the iPhone, iPad and Mac devices, to prevent targeted cyberattacks on high-profile users such as activists, journalists and government officials. And in other news, just week after the US Federal Communications Commission (FCC) wrote to Apple’s Tim Cook and Google’s (GOOGL) Sundar Pichai, asking them to remove TikTok from their app stores, saying “TikTok poses an unacceptable national security risk", now US senators are seeking a federal investigation into TikTok.  Apple (AAPL) shares moved almost 1% higher, extending their three-day uptrend.

U.S.-China relations aren’t getting any better

After some reports earlier this week around the Biden administration considering a potential rollback of some China tariffs, we cautioned against excessive euphoria as Biden’s only agenda is to bring down inflation ahead of the midterm elections. Now according to Politico, the cut is only for $10 billion worth of goods, a small fraction of the total of $370 billion worth of imports from China. We believe strategic goods like steel will not be considered, and this is unlikely to have any material impact on macro dynamics. Meanwhile, U.S.-China tensions on the tech side are picking up again with China's foreign ministry accusing U.S. of "technology terrorism" in forcing ASML & Nikon from selling semiconductor chip making technology to China. China reports Q2 GDP data next week, but the true extend of economic headwinds will hardly be visible in the headline figure.

Samsung warns of challenging outlook

Samsung reported a 21% jump in Q2 revenue, boosting the tech sentiment in Asia and lifting the Hang Seng Tech index as well as Taiwan’s TSMC. Still, weaker-than-expected operating profit continued to reflect margin pressures and it also cautioned about a challenging outlook, echoing what we heard from Micron last week. Samsun will report full results later this month.

Potential trading and investing ideas to consider?

Low liquidity feeds volatility

With most of Europe away on holiday, market liquidity is usually thinner in July and moves can be amplified. It is prudent to give less weight to volatile market moves and focus on the long-term fundamentals, this is especially the case for investors. Holding the US Dollar and cash may be the kings for now, along with selective quality stocks, perhaps in coal given coal prices seen to be supported. However, when it comes to cash positions, remember that with inflation remaining higher for longer, cash value will erode. Also bear in mind that the supply side of the economy is still not fixed, and the focus will move back to bringing that in balance, once the market moves away from speculative trading.


For a global look at markets – tune into our Podcast. 

Latest Market Insights

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.