FTSE 100 brushes off Massive UK Rail Strike – Daily Market Brief, June 21, 2022

European markets are set to start higher on Tuesday, extending gains from the previous session and helped up by a positive session in Asia.

·         FTSE rises despite rail strikes proceeding which are estimated to cost the UK £1 billion

·         Gold edges lower ahead of Fed Chair Powell’s bi-annual monetary policy testimony before the Congress

·         AUD/USD rises following hawkish comments from RBA Governor Philip Lower & RBA minutes

With US stock and bond markets closed yesterday for Juneteenth public holiday, European stocks managed to climb higher, rebounding from last week’s heavy losses.

Stocks dropped sharply last week as investors digested larger rate hikes and more aggressive central bank policy. Fears that increasingly hawkish central banks could tip economies into recession dragged stocks lower. Those fears remain this week even though stocks are rising. This is not a risk reset being played out in the market, as fundamentally nothing has changed since last week; it is instead quite usual after a heavy selloff to see a move higher.

Strikes

The DAX closed up 1% yesterday and set for a 0.4% rise on the open. Meanwhile, the FTSE closed 1.5% higher yesterday and is looking to open 0.3% higher today even as the UK’s largest rail strike in three decades is set to proceed after a last-minute offer was rejected. Failing negotiations mean that 40,000 staff at train operating companies will walk out for three days this week, in a move estimated to cost the UK £1 billion. Concerns are rising that the strikes will spread to other industries as the cost of living crisis ramps up.

GBP/USD is managing to hold onto mild gains from yesterday, above 1.2250, partly thanks to the weaker USD.

The European and UK economic calendars are quiet today; attention will be on Fed Chair Powell later today.

Gold

Gold prices are edging lower for a fourth straight session as the market mood continues improving and despite the softer USD. After a quiet start to the week yesterday with the US public holiday, attention is turning to Federal Reserve Chair Jerome Powell, who is due to testify before Congress in a bi-annual monetary policy report. Should Powell sound confident that a 75 basis point rate hike is coming in July, following the 75 bp hike in June, the USD could quickly resume its uptrend towards a 20-year high. This could pull the Gold price lower, towards $1800.

RBA minutes

AUD/USD is pushing higher toward 0.70 following comments from RBA governor Philip Lowe, who reiterated that more rate hikes were coming. Australian inflation is expected to rise to 7% by the end of the year and will begin to ease lower in the early part of 2023. He added that the level of interest rates was still very low for a country with low unemployment and high inflation. The minutes from the latest RBA meeting were released following Philip Lowe’s speech. They showed that policymakers would consider a 25 or 50 basis point at the meeting, depending on the incoming economic data.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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