16 May

The ECB is getting closer to tightening monetary policy. China shows weak economic data

May 16, 2022

by JustForex

According to the data released on Friday, the University of Michigan’s sentiment index fell to 59.1 from 65.2 in April. The figure was lower than all economists surveyed by Bloomberg, which had an average score of 64. The US consumer sentiment fell to its lowest level since 2011 as remaining concerns about inflation clouded Americans’ views of the economy.

At the close of the stock market on Friday, the Dow Jones index (US30) increased by 1.47% (-1.49% for the week) and the S&P 500 index (US500) added 2.39% (-1.41% for the week). Technology index NASDAQ (US100) jumped by 3.82% on Friday (-0.99% for the week). Аt the end of the week, all three indices were negative.

Major European indices traded higher on Friday. German DAX (DE30) gained 2.10% on Friday (+2.96% for the week), French CAC 40 (FR40) added 2.52% (+2.51% for the week), Spanish IBEX 35 (ES35) increased by 1.68% (+0.74% for the week), British FTSE 100 (UK100) jumped by +2.55% (+0.41% for the week). Consumer price index in France increased 0.4% in April (after +1.4% in March). On an annualized basis, the inflation rate reached 4.8%. The annualized consumer price index in Spain declined from 8.4% to 8.3%. EU industrial production fell by 1.8% in March 2022. With the war in Ukraine and sanctions on Russian goods and energy, the European economy is starting to show signs of slowing down. More and more ECB officials are leaning toward an interest rate hike at the July meeting. At the same time, analysts predict that the ECB is likely to decide at its next meeting to end its economic stimulus program.

The G7 countries agreed to increase the economic and political isolation of Russia. In addition, the statement notes that the G7 countries will supply arms to Ukraine, if necessary – for a long time. Also, the statement said that the G7 countries will never recognize the borders that Russia is trying to change through military aggression. G7 countries also criticized Minsk for its position on Ukraine. The G7 countries also intend to step up efforts to reduce dependence on Russian energy as quickly as possible. This includes phasing out coal and oil.

For its part, Russia has begun to threaten the EU openly. “If the EU actually approves the procedure for Ukraine to start entering the European Union, this will mean the end of the European Union,” the Russian Foreign Ministry said. At the same time, Russia began to openly threaten Finland and Sweden, which intend to join NATO in the near future. “As soon as Finland and Sweden become members of NATO and units of the alliance are there, these territories will become a possible target for the Russian military,” said Deputy Permanent Representative of Russia to the UN Polyansky.

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Analysts at the American Institute for War Research (ISW) believe that Russia has almost no chance of success in a war with Ukraine. The new phase of the war will follow one of three developmental paths:
  • The Russian Federation will stop and decide to annex already occupied territories;
  • The Russians will try to mobilize additional forces (with mobilization not excluding military collapse);
  • Putin will continue to pursue impossible military goals with insufficient resources and eventually collapse in the coming months.

In commodity markets, gold is still under pressure from high government bond yields and a strong dollar. Once the dollar index begins to decline and monetary policy is close to normalization, gold and silver will once again become attractive assets to buy. But at the moment, there is no fundamental reason for the price of precious metals to rise.

Oil prices rose on Friday, but at the opening session on Monday started to show a sharp decline amid weak data from China, which again increased investors’ concerns over the demand.

Asian markets closed in the green territory last week. Japan’s Nikkei 225 (JP225) gained 2.64% over the week, Hong Kong’s Hang Seng (HK50) added 2.68% over the week, and Australia’s S&P/ASX 200 (AU200) was up +1.93% over the week. China’s economic figures for April disappointed analysts. Retail sales in China fell by 11.1% year on year. Industrial production fell by 2.9% in April compared to the same period last year. The unemployment rate increased from 5.8% to 6.1%. Auto sales in April were down by 31.6% from a year ago. Local lockdowns in China continue to impact manufacturing and business activity seriously. China’s central bank on Monday extended the maturity of medium-term loans, keeping the interest rate unchanged for the fourth month in a row, in line with market expectations. India banned wheat exports to ensure the country’s food security.

In the commodities market, wheat futures (+6.45%), gasoline (+5.05%), coffee (+1.85%) and soybeans (+1.5%) showed the biggest gains at the end of the week. Lumber futures (-7.1%), silver (-5.55%), natural gas (-5.23%), palladium (-4.83%), gold (-3.85%), orange juice (-3.49%), platinum (-2.64%) and copper (-2.4%) showed the biggest drop.

Main market quotes:

S&P 500 (F) (US500) 4,023.89 +93.81 (+2.39%)

Dow Jones (US30) 32,196.66 +466.36 (+1.47%)

DAX (DE40) 14,027.93 +288.29 (+2.10%)

FTSE 100 (UK100) 7,418.15 +184.81 (+2.55%)

USD Index 104.47 -0.39 (-0.37%)

Important events for today:
  • – Japan Producer Price Index (m/m) at 02:50 (GMT+3);
  • – China Retail Sales (m/m) at 05:00 (GMT+3);
  • – China Industrial Production (m/m) at 05:00 (GMT+3);
  • – China Unemployment Rate (m/m) at 05:00 (GMT+3);
  • – Eurozone EU Economic Forecasts (m/m) at 12:00 (GMT+3);
  • – US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
  • – US FOMC Member Williams Speaks at 15:55 (GMT+3);
  • – UK Monetary Policy Report Hearings at 17:15 (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.


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