Market Wrap US-Europe 22 July: Europe Rises on Commodity Stocks While Wall Street Stalls as the Oil Surge Revives Fed Rate-Hike Bets

By The Edge Research Team

The two sides of the Atlantic split. Europe closed broadly higher, led by a commodity-stock rally as oil and metal prices climbed, the FTSE 100 up 1.24 percent, while Wall Street stalled: the S&P 500 eased 0.14 percent to 7,498.96 and the Nasdaq Composite fell 0.57 percent to 25,690.90 as the oil surge revived bets on a more hawkish Federal Reserve, lifted Treasury yields and pressured rate-sensitive shares. The Dow Jones finished effectively flat at 52,218.58, and the semiconductor makers held on to the ground of Tuesday’s rally.

Wall Street’s session was quiet but for the undercurrent in the bond market. The Philadelphia Semiconductor Index added 0.44 percent to 12,410.67, extending the chip-led surge our Tuesday wrap tracked, while the small-cap Russell 2000 was the laggard, off 0.90 percent to 2,960.38, the most rate-sensitive corner of the market. The driver was rates: with Brent above 94 dollars, investors reassessed the path of Federal Reserve policy toward a possible hike rather than a cut, per CNBC. The 10-year Treasury yield rose about 4 basis points to 4.66 percent and the 2-year about 5 basis points to 4.31 percent, and money markets moved to price about a 31 percent chance of a rate increase at this month’s meeting and about a 75 percent chance the target range would be at least a quarter-point higher by September, in a CME FedWatch snapshot reported by CNBC. The backdrop stayed geopolitical, with US Central Command carrying out an eleventh consecutive night of strikes on Iran and the US Secretary of State saying Tehran was not serious about peace talks, per CNBC.

Europe took the same commodity move as a tailwind. London’s FTSE 100 led the major boards, up 1.24 percent to 10,716.97 as commodity and energy shares climbed with oil and metal prices, per Reuters, with Madrid’s IBEX 35 up 0.99 percent, Milan’s FTSE MIB 0.97 percent and Paris’s CAC 40 0.89 percent. Frankfurt’s DAX and the pan-European Stoxx 600 each added 0.58 percent, and the Euro Stoxx 50 rose 0.50 percent. The region’s heavier weighting in energy and materials worked in its favour on a day when the same oil move was a headwind for US rate expectations, our reading.

Across the rest of the board the dollar was little changed, the ICE dollar index near 101.1, while the euro edged up 0.12 percent to 1.1411 and sterling held near 1.3373. Market volatility stayed subdued, the VIX easing 1.99 percent to 16.71. Earlier in the day Asia had closed mixed and the Gulf split higher with Saudi Arabia in front, while the commodity board that shaped Wednesday’s tone stayed bid, Brent holding above 94 dollars, as our separate wraps set out and the reference tables below summarise. The focus then turned to a heavy evening of earnings, with Alphabet, IBM and Tesla all reporting after the New York close, per CNBC.

Why it matters: The oil shock has become a rates story. A near six-week high in Brent is feeding through to inflation expectations and, with them, a real debate about whether the Federal Reserve’s next move is a hike rather than a cut, per CNBC. That split the two markets on Wednesday: Europe’s commodity-heavy indices rose with the underlying prices, while Wall Street’s rate-sensitive corners, small caps most of all, gave ground as yields climbed, our reading. The one constant was the chipmakers, which held their Tuesday gains even as the broader US tape drifted.

Outlook: The near-term markers are the mega-cap earnings landing after Wednesday’s close, with Alphabet, Tesla and IBM setting the tone for the artificial-intelligence and technology trade, and Friday’s S&P Global Flash US PMI for a read on growth, per CNBC. Beyond that, the questions are whether oil can hold above 94 dollars and keep the rate-hike debate alive, whether the 10-year yield presses toward the top of its recent range, and whether the semiconductor rally can keep leading while the rest of the market waits.

Table – US indices, 22 July close, ranked by change:

Table – Europe indices, 22 July close, ranked by change:

Table – Rates, the dollar and currencies, 22 July:

Table – MENA and Asia, 22 July close, for reference, ranked by change:

Table – Commodities, intraday 22 July, for reference, ranked by change:

Price basis: US index levels and the VIX are CNBC readings at the 4:00 p.m. Eastern time close on 22 July; Europe levels are the day’s closes at their local finishes; yields, the dollar index and currency pairs are CNBC quotes near the US close and are intraday, not official settlements; the Federal Reserve rate probabilities are CME FedWatch readings as reported by CNBC; the MENA and Asia and the commodities tables repeat the figures from our published 22 July wraps, intraday where noted there; the US and Europe previous closes are our published Tuesday wrap.

Sources: CNBC; Reuters.

Get Complimentary Insights

Follow us