Credit Suisse last week lowered its forecast for the S&P 500 Index. Goldman Sachs Group Inc., Bank of America Corp., and Morgan Stanley also forecast that the stock market will struggle this year. The Federal Reserve is in the midst of a cycle of aggressive rate hikes that are expected to put pressure on US corporate earnings and economic growth. This is already weakening the support of the stock market, causing stock indices to decline steadily for weeks, while the dollar index shows growth. At the close of the stock market yesterday, the Dow Jones index (US30) decreased by 1.99%, the S&P 500 index (US500) lost 3.20%, and the NASDAQ Technology Index (US100) fell by 4.29% on Monday.
High inflation, volatility in stock and commodity markets, and the war in Ukraine have become major risks to the US financial system, the Federal Reserve said in its Financial Stability Report on Monday. Rapidly rising US Treasury bond yields, war-related problems in oil markets, and other factors have already strained parts of the financial system.
Fed spokesman Bostic sees 2-3 interest rate hikes of 50 basis points in future meetings. On Monday, Minneapolis Federal Reserve President Neel Kashkari said that he was confident that inflation would return to normal, but it would take longer. Kashkari has always advocated lower rates and soft monetary policy, but he voted for two hikes this year because it is necessary to control price increases. However, he noted that the burden of tightening policy would fall on those at the lower end of the wage spectrum, that is, the poor. Financial analysts are already estimating the probability of a 75 basis point interest rate hike at the Fed's upcoming June 14-15 meeting at 79% (yesterday it was 75%).
US President Joe Biden has signed a law on a lend-lease bill for Ukraine. Last week, the US House of Representatives approved a lend-lease bill that would allow a more efficient supply of weapons, ammunition, and equipment to Ukraine.
Major European indices traded lower on Monday. The German DAX (DE30) decreased by 2.15%, the French CAC 40 (FR40) lost 2.75%, the Spanish IBEX 35 (ES35) fell by 2.20%, and the British FTSE 100 (UK100) decreased by 2.32%. Investors remain concerned about the combination of higher interest rates and lower economic growth in the region. Russia's invasion of Ukraine remains another source of tension in the market. The British Retail Consortium survey released yesterday showed a high degree of slowdown in UK growth. The UK risks facing stagflation (slowing economic growth and declining GDP due to rising consumer prices). Analysts believe that if the Bank of England does not act decisively now, the UK will face a significant economic decline in the second half of the year. Meanwhile, economic surveys and research already show that ordinary consumers have begun to save significantly due to a spike in the prices for almost all goods and services.
On Monday, crude oil prices fell by 6% as the dollar hit a 20-year high amid fears over a US interest rate hike, hitting the value of commodities priced in currencies and other risky assets. The OPEC+ Alliance of Oil Exporters agreed at its monthly meeting to increase nominal production by 432,000 barrels a day, but it’s well below the projected summer oil demand. Analysts note that oil prices are falling fast as fears of lower crude demand grow, given the COVID situation in China.
Asian markets traded closed in the red zone yesterday. Japan's Nikkei 225 (JP225) decreased by 2.53%, Hong Kong's Hang Seng (HK50) fell by 3.81%, and Australia's S&P/ASX 200 (AU200) lost 1.18%. The Chinese yuan has reached an 18-month low against the dollar as the Covid lockdown in Beijing slows down the economy, with US bond yields rising. China's central bank is trying to slow the yuan's fall, as it set the benchmark exchange rate above expectations for the fifth day in a row on Monday. Last month, the People's Bank of China also cut its foreign-currency reserve requirement rate to boost the dollar supply and boost the yuan. But these actions are not enough to stop the depreciation as the dollar index strengthens steadily. Hong Kong's Hang Seng Index has fallen for the fifth session. The sharp decline follows a global sell-off and also because China has imposed tough lockdowns that are hurting business, and there are growing signs that this damage will spread to the global economy.
Main market quotes:
S&P 500 (F) (US500) 3,991.24 -132.10 (-3.20%)
Dow Jones (US30) 32,245.70 -653.67 (-1.99%)
DAX (DE40) 13,380.67 -293.62 (-2.15%)
FTSE 100 (UK100) 7,216.58 -171.36 (-2.32%)
USD Index 103.70 +0.04 (+0.04%)
- – German ZEW Economic Sentiment at 12:00 (GMT+3);
- – Eurozone ZEW Economic Sentiment at 12:00 (GMT+3);
- – US FOMC Member Williams Speaks at 14:40 (GMT+3);
- – US FOMC Member Bostic Speaks at 15:30 (GMT+3);
- – US FOMC Member Waller Speaks at 20:00 (GMT+3);
- – US FOMC Member Mester Speaks at 22:00 (GMT+3).
by , 2022.05.10
We advise you to get acquainted with the daily forecasts for the major currency pairs.This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
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