The rise in the dollar index, Japanese yen, and government bond yields indicates that traders are beginning to fear another hawkish surprise from the Federal Reserve, whose meeting is expected next week. According to Deutsche Bank, the US Federal Reserve may raise rates more aggressively in March, by 50 basis points at once, to get ahead of inflation. As a result, the stock market saw another sell-off yesterday. At the close of the stock market, the S&P 500 Index (US500) decreased by 1.8%, the Dow Jones Industrial Average (US30) decreased by 1.5%, and the Nasdaq Technology Index (US100) lost 2.5%.
The jump in Treasury yields is usually good for banks, but not this time. US bank Goldman Sachs Group Inc. cut its fourth-quarter 2021 net income, with per-share earnings worse than analysts expected. The bank’s stock price fell 7%. Charles Schwab Corp. last quarter increased net income by nearly 40%, but the adjusted figure rose weaker than market forecasts. As a result, shares of the banking and brokerage firm fell 3.5%. But market participants continue to bet that higher interest rates will eventually support cyclical market sectors such as finance and energy.
New York’s Empire Manufacturing index fell to minus 0.7 points in January. The indicator’s value below zero indicates that business conditions in the region are worsening.
Microsoft shares fell more than 2% after the tech giant announced it was buying struggling video game company Activision Blizzard for $69 billion. ATVI’s share price jumped by 26% on the news.
European stock indexes also closed in the red zone yesterday. German index DAX (DE30) lost 1.01%, British FTSE 100 (UK100) decreased by 0.62%, French CAC 40 (FR40) decreased by 0.94%, and Spanish IBEX 35 (ES35) lost 0.65%.
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French Finance Minister Le Maire pointed out that the biggest risks to the global economy at the moment are: a pandemic, a slowdown in China, an energy crisis, and rising inflation.
The ECB’s balance sheet continues to grow. Total assets grew by another 20.7 billion euros. The ECB continues to actively stimulate the region’s economy.
According to data from the ZEW Institute, economic sentiment in Germany and the Eurozone has improved significantly over the past month. At the same time, the inflation expectations decreased. Investors forecast a ten basis points rate increase by the European Central Bank till September 2022. The consumer price index in Germany remained at 5.3%. The UK inflation rate rose from 5.1% to 5.4% in annual terms. The rise in inflation further increases the probability of an interest rate hike at the next Bank of England meeting.
The price of Brent crude on the ICE exchange reached $88 a barrel for the first time since October 2014. Analysts point out that oil demand has been higher than previously forecast in the past three months. If current geopolitical tensions persist and OPEC+ members fail to deliver an increase of 400,000 barrels per day, macroeconomic indicators combined with strong technical forecasts could cause oil prices to trend toward $100 per barrel. Oil continued to rise in today’s trading. There was an explosion on a pipeline from Iraq to Turkey, which took out crucial supplies.
Major Asia-Pacific stock indexes are decreasing in trading Wednesday, following a drop in US indices. Japan’s Nikkei 225 Index (JP225) sharply fell by 2.8% from the opening, Hong Kong’s Hang Seng Index (HK50) decreased by 0.32%, and Australia’s ASX 200 Index (AU200) lost 1.03%. The focus is on the situation with the rise in coronavirus infections in Asia. Asian economies suffered during the pandemic, and the process of recovery has been hampered. Japanese Prime Minister Kishida intends to declare a state of emergency in certain regions of the country from January 21 to February 13. This is likely to lead to a slowdown in economic activity. The actual unemployment rate in Hong Kong was 3.9% (forecast 4.1%, previous 4.1%).
Main market quotes:
S&P 500 (F) (US500) 4,577.11 −85.74 (−1.84%)
Dow Jones (US30) 35,368.47 −543.34 (−1.51%)
DAX (DE40) 15,772.56 −161.16 (−1.01%)
FTSE 100 (UK100) 7,563.55 −47.68 (−0.63%)
USD Index 95.73 +0.48 (+0.50%)
- – UK Consumer Price Index (m/m) at 09:00 (GMT+2);
- – German Consumer Price Index (m/m) at 09:00 (GMT+2);
- – Canada Consumer Price Index (m/m) at 15:30 (GMT+2);
- – US Building Permits (m/m) at 15:30 (GMT+2);
- – UK BoE Gov Bailey Speaks at 16:15 (GMT+2).
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.