Aggressive FED policy forces investors to sell stocks

by JustForex

The US stock indices opened yesterday with gains thanks to corporate earnings and strong unemployment data but began to decline in anticipation of statements by Federal Reserve Chairman Jerome Powell. Powell confirmed a 0.5% interest rate hike at next month’s policy meeting. Growing fears over increasingly aggressive FED policy have hit Treasuries, especially in the short term, leading to a stock sell-off at the end of the day. As the stock market closed yesterday, the Dow Jones index (US30) decreased by 1.05% and the S&P 500 index (US500) lost 1.48%. The NASDAQ Technology Index (US100) fell by 2.07%.

The Snap company forecast bright prospects for user growth on Thursday but said supply chain disruptions and high inflation could further dampen demand for advertising.

The main European indices were mainly rising yesterday. Germany’s DAX (DE30) gained 0.98%, France’s CAC 40 (FR 40) jumped by 1.36%, Spain’s IBEX 35 (ES35) added 0.51%, and Britain’s FTSE 100 (UK100) fell by 0.02%. The annual consumer price index in Europe decreased unexpectedly in April from 7.5% to 7.4%. At the same time, the core inflation rate, which excludes food and energy prices, declined from 3.0% to 2.9%. European Central Bank President Christine Lagarde said the ECB may have to cut its growth forecast even further as the effects of Russia’s invasion of Ukraine take a toll on households and businesses. Joachim Nagel, president of Germany’s Bundesbank said the ECB may raise interest rates early in the third quarter. UK retail sales fell for the third time in the past four months as the cost of living crisis further hit consumer confidence.

French President Emmanuel Macron gave an excellent performance in the televised debate against the right-wing candidate Marine Le Pen. The second round of presidential elections in France will be held this Sunday. Analysts predict the victory of the incumbent president.

The oil prices were falling in the previous sessions mainly because the IMF reduced the estimates of the global economic growth in 2022/23 and concerns about the growth of mortality from Covid in China, the second-biggest oil consumer in the world. But yesterday, oil prices started rising again as concerns about a possible European Union ban on Russian oil came to the fore.

The US oil company ExxonMobil is considering completely shutting down its operations in Russia by June 24. In March ExxonMobil announced plans to withdraw from the Sakhalin-1 project.

The looming rate hike also affected gold, which hit its lowest level in two weeks. Gold and silver are inversely correlated to the dollar index and especially to US Treasury bond yields. Therefore, when bond yields rise, gold and silver prices fall.

Asian stock markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped by 1.23%, Hong Kong’s Hang Seng (HK50) fell by 1.25%, and Australia’s S P/ASX 200 (AU200) added 0.31%. Chinese stocks rebounded slightly yesterday, with blue chips recouping early losses and rising 1% on hopes for political support, but price pressure persists as a Shanghai lockdown holds back gains. The yuan has fallen to a seven-month low. Analysts at HSBC expect China to need a comprehensive easing package on all fronts, both monetary and fiscal, including easing measures in the real estate sector, which has been hit hard by restrictions on access to credit.

Australia’s business activity index (PMI) showed growth in both manufacturing and services sectors. Values are above the 56 mark. Anything above 50 is considered economic growth and stability.

Main market quotes:

S&P 500 (F) (US500) 4,393.66 −65.79 (−1.48%)

Dow Jones (US30) 34,792.76 −368.03 (−1.05%)

DAX (DE40) 14,502.41 +140.38 (+0.98%)

FTSE 100 (UK100) 7,627.95 −1.27 (−0.017%)

USD Index 100.63 +0.24 (+0.24%)

• – Australia Manufacturing PMI (m/m) at 02:00 (GMT+3);
• – Japan National Core Consumer Price Index at 02:30 (GMT+3);
• – UK Retail Sales (m/m) at 09:00 (GMT+3);
• – German Manufacturing PMI (m/m) at 10:30 (GMT+3);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• – Canada Retail Sales (m/m) at 15:30 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 16:00 (GMT+3);
• – US Manufacturing PMI (m/m) at 16:45 (GMT+3);
• – UK BoE Gov Bailey Speaks at 17:30 (GMT+3).

by JustForex

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.