Rising global inflation forces central banks to revise the monetary policy in a tighter direction

by JustForex

The US consumer price index rose to 8.5% y/y, beating economists’ forecasts of 8.4%, but investors’ attention was focused on the core CPI, which excludes food and energy prices. The core CPI increased by 0.3% in March, slower than the 0.5% forecast by economists. Amid a jump in inflation, the dollar index rose sharply yesterday, causing major indices to fall. At the end of the day, the Dow Jones Index (US30) decreased by 0.6% yesterday, the S&P 500 Index (US500) lost 0.34%, and the NASDAQ Technology Index (US100) fell by 0.30%.

Inflation data led to a decline in US yields on Tuesday, but they recovered slightly late in the day and early in trading on Wednesday.

The US earning season for the first quarter of 2022 has begun. JPMorgan, BlackRock, Infosys, Fastenal, First Republic Bank, Tesco, and Delta Airlines will report today.

European stock markets closed in the red zone yesterday. German DAX (DE30) decreased by 0.48% yesterday, French CAC 40 (FR 40) lost 0.28%, Spanish IBEX 35 (ES35) fell by 0.08%, British FTSE 100 (UK100) lost 0.55%. In March, the UK consumer price inflation jumped to 7.0% y/y, the highest level since March 1992. The core inflation index, excluding food and energy prices, also jumped from 5.2% to 5.7% y/y. Russia’s invasion of Ukraine on February 24 led to higher energy prices, and last month the UK Office of Fiscal Responsibility predicted that the consumer price index would reach 8.7% in the last quarter of 2022. Such a jump in consumer prices undoubtedly requires actions by the Bank of England. Financial participants believe that the Bank of England will almost certainly raise interest rates to 1% at its next meeting on May 5 and then bring them up to 2%-2.25% by the end of 2022. The European Central Bank will hold a meeting on Thursday, and pressure on policymakers to tighten monetary policy has intensified as consumer price inflation in Europe continues to rise. In Germany, inflation increased to 7.3% y/y, and the annual CPI jumped to 9.8% in Spain.

Russian President Vladimir Putin said that the peace talks “once again deadlocked for us.” Hopes for peace are fading as Russia builds up its army in Southeast Ukraine. US President Joe Biden has said for the first time that Moscow’s invasion of Ukraine is tantamount to genocide, and the United States is reportedly set to announce an additional $750 million in military aid, a sign that the war will continue. Today, the Pentagon will host leaders of eight major US weapons manufacturers to discuss the industry’s ability to meet Ukraine’s weapons needs if the war with Russia continues for years.

Oil prices rose above $100 a barrel on Tuesday as Shanghai’s efforts to ease some quarantine measures over Covid-19 eased concerns about the impact on global demand. The rise in oil prices came ahead of new weekly US oil reserves data, which are expected to show a second-week increase in inventories.

Stock indices of the Asia-Pacific region showed mixed movements yesterday. Japan’s Nikkei 225 (JP225) lost 1.81%, Australia’s S&P/ASX 200 (AU200) decreased by 0.42%, while Hong Kong’s Hang Seng (HK50) gained 0.52%.

The central bank of New Zealand has announced the steepest interest rate hike in two decades to curb inflation. RBNZ raised the rate immediately by 0.5%. Chinese exports continued to grow in the first quarter of 2022, but the war in Ukraine and the latest COVID-19 outbreak in the country may slow exports in the next quarter. Over the past two years, China’s strong trade performance could slow in 2022 as other countries loosened restrictive measures related to COVID-19. The surge in energy prices and supply disruptions caused by the war in Ukraine continues to put pressure on exporters. On Wednesday, Bank of Japan Governor Haruhiko Kuroda said that the central bank would continue its ultra-soft monetary policy to support the economy under pressure from rising import costs.

Main market quotes:

S&P 500 (F) (US500) 4,397.45 -15.08 (-0.34%)

Dow Jones (US30) 34,220.36 -87.72 (-0.26%)

DAX (DE40) 14,124.95 -67.83 (-0.48%)

FTSE 100 (UK100) 7,576.66 -41.65 (-0.55%)

USD Index 100.31 +0.38 (+0.38%)

• – New Zealand RBNZ Interest Rate Decision at 05:00 (GMT+3);
• – New Zealand RBNZ Rate Statement at 05:00 (GMT+3);
• – UK Consumer Price Index (m/m) at 09:00 (GMT+3);
• – UK Producer Price Index (m/m) at 09:00 (GMT+3);
• – Japan BOJ Gov Kuroda’s Speech at 09:15 (GMT+3);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
• – US Producer Price Index (m/m) at 15:30 (GMT+3);
• – Canada BoC Interest Rate Decision at 17:00 (GMT+3);
• – Canada BoC Monetary Policy Report at 17:00 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – Canada BoC Press Conference at 18:00 (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.