News & Analysis

US equities rally despite European pessimism , BOJ, ECB preview

21 July 2022 By Lachlan Meakin


The short squeeze continued in the US overnight as equites were well bid during the cash session seeing a second straight rise as slowly improving investor sentiment seeing the S&P 500 close up 23 points or 0.6%.

In Europe, things were not so rosy , with political issues in Italy and fears of Russian gas being curtailed after the Nord Stream 1 pipeline comes back online creating a pessimistic backdrop seeing red across all UK and European indices.


The USD strengthened, snapping a 3 day losing streak, seeing the US Dollar index retake the 107 handle, unsurprisingly the Euro particularly struggled with the poor macro news coming out of the continent.

The risk on sentiment was also seen in Crypto with Bitcoin continuing a solid 8 day stretch, rising almost 30% from it’s recent lows and back above USD 24k and Ethereum breaking through 1600. One headwind for Bitcoin in particular is the news released by Tesla during it’s after the bell earnings report that it had sold 75% of its Bitcoin holdings, corporate acceptance of Bitcoin was one of the main drivers of its stellar ally last year, and this news could certainly dent investor enthusiasm for the token. On the flip side, Gold broke through the 1700 USD support as the yellow metal goes unloved by investors and traders alike.


Looking ahead, Central banks will be in the spotlight, namely the Bank of Japan and European Central Bank, both go into their meeting today with the two most battered currencies, seeing both the EUR and JPY at 20+ years lows against the USD and it will be interesting to see how the BOJ and ECB react to this.


The BOJ is expected to sustain its ultra-accommodative polices despite JPY weakness and being the odd one out as compared to other developed nations who are now well into a tightening cycle, how long they can take this path remains to be seen, but we may get clues from this policy meeting.

The ECB is set to finally pull the trigger and commence its rate hiking cycle, this meeting is not as clear cut as the BOJ and will be one to watch closely. 25bp was the telegraphed hike for this meeting but recent reporting suggested that policymakers will now discuss the possibility of a 50bps move, markets are pricing in around a 60% chance of such a move, up from 33% earlier in the week.

The ECB hawks argument is that by September, when a second 25bp hike was pencilled in, economic conditions may have deteriorated further, making a hike unpalatable. Euro volatility around this release is almost a certainty.

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