Europe

Risk sentiment is slightly higher heading into European morning trade.

Equity futures are higher as the session begins.

Consider the following changes in stock futures:

• S&P 500 futures are up 0.4%.

• Nasdaq futures are up 0.6%.

• Dow futures are up 0.2%.

• German DAX futures are up 0.8%.

• Eurostoxx futures are up 0.7%.

• UK FTSE futures are up 0.7%.

The gains have moderated slightly from earlier in the day, but they still outperform yesterday’s more cautious and subdued tone. Overall, it suggests that the week will have more of a push and pull feel as the selling pressure that has been building since April comes to a halt.

“Inflationary pressures remain high, as evidenced by today’s European PMI readings. Recession risks are increasing by the day, as evidenced by today’s extremely low UK PMI readings. And central banks are still looking to tighten policy, as evidenced by Lagarde’s commitment in her remarks earlier today.”

So, while there is room for some wiggle room, keep in mind that the key themes that brought us here are still very much in play.

NZD/USD

NZD/USD rises after the RBNZ raises interest rates and forecasts higher rates.

The following is a post about the Reserve Bank of New Zealand’s decision:

The Reserve Bank of New Zealand raised its cash rate by 50 basis points, as expected.

According to the linked post, the bank expects even higher rates in the future:

The RBNZ expects the official cash rate to be 2.68 percent in September 2022. (previous 1.89 percent ).

The RBNZ expects the official cash rate to be 3.88 percent by June 2023. (previous 2.84 percent ).

The RBNZ expects the official cash rate to be 3.95 percent in September 2023. (previous 3.1 percent ).

According to the RBNZ, 3.95 percent is the expected peak. The Bank previously observed a peak of 3.35 percent.

Euro

Kiwi leads the charge after a hawkish RBNZ rate hike earlier in the day.

The euro is down slightly just under 1.0700, seeing its gains over the last two days stall for a bit. One of the more intriguing dollar pairs in my opinion right now is USD/JPY, which fell below 127.00 yesterday to its lowest level since 18 April. The pair is seeing a light bounce back near the figure level, but from a technical standpoint, sellers appear to be ready to push the agenda. If they can maintain a strong break below 127.00, the 125.00 level will be the next important target.

The fact that Treasury yields are falling from recent highs is also helping to keep the downside momentum going for the time being. Ten-year yields have fallen to around 2.75 percent from a high of 3.20 percent just two weeks ago. Looking at other currencies today, the Kiwi is the top gainer after the RBNZ raised interest rates by 50 basis points, as expected. However, the central bank outlined a more hawkish rate projection, emphasising its willingness to raise rates above neutral in order to control inflation.

Equity

Gains in equity have been eroded

European indices pare gains, while US futures reverse earlier gains

Come and go with ease. In European morning trade, equities are once again showing signs of weakness. European indices are losing ground, while US futures are also trending lower. While there is room for some wiggle room, let us not forget what has dragged equities to this point. And they are still very much in play.

Nonetheless, a run of seven straight weeks of declines in US equities could prompt a bounce before the end of the week. However, the overall picture remains bleak for the time being.

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