03 May

The US 10-year Treasury yields increased to 3% for the first time since 2018

May 3, 2022

by JustForex

Increased inflationary pressures caused by the war in Ukraine, as well as supply chain problems related to the pandemic and restrictions in China, have helped raise bond rates and strengthened expectations of Federal Reserve policy tightening. Investors continue to expect more and more central banks to tighten monetary policy in response to high inflation.

Some analysts believe that the US government may have misjudged the looming threat of inflation. The US Federal Reserve provided enormous amounts of cash during the pandemic to smooth out widespread economic damage. According to analysts, this stimulus led to an increase in household savings. A boom followed this in demand for durable goods. This surge in demand occurred when global supply chains came to a halt, followed by prolonged inflation. In March 2022, prices in all categories jumped to historic levels, with inflation reaching 8.5% year on year. However, today’s inflation is not spiraling as in the past. In the past, monetary tightening has reduced inflation and forced companies to shift labor costs offshore. As a result, American workers have seen their labor income stagnate relative to labor productivity for four decades. This period in US economic history was remembered for stagflation. Many analysts believe policymakers will fail to make a soft landing on the economy, and the US will soon face stagflation again (slowing economic growth with high inflation).

US stock indices mostly declined throughout the trading day yesterday, but at the close of the session, they showed a sharp impulse and closed the day in the positive zone. By the close of the trading session yesterday, the Dow Jones index (US30) gained 0.26%, the S&P 500 index (US500) added 0.57%, and the technology index NASDAQ (US100) jumped by 1.63%.

Major European indices closed in the red zone yesterday. German DAX (DE30) decreased by 1.13%, French CAC 40 (FR40) lost 1.66%, Spanish IBEX 35 (ES35) fell by 1.73%, British FTSE 100 (UK100) was not traded. The UK retail sales index showed a significant decline last week. Retailers also expect sales to decline in May. Economic surveys point to concerns about the outlook for consumer spending and the economy as a whole. The Bank of England will hold a monetary policy meeting as early as Thursday, where it is likely to decide on another 0.25% interest rate hike. Italian Prime Minister Draghi said the government had approved measures to stimulate the economy by another 14 billion euros. The European Commission is expected to complete the sixth package of European Union (EU) sanctions against Russia for its invasion of Ukraine today.

The European Commission considers the decision to cut off Poland and Bulgaria from gas a breach of contract. Currently, Bulgaria and Poland receive gas through Greece and Germany. The European Commission also considers Russia’s demand to pay for gas in rubles “an attempt to split the EU” and calls for solidarity and unity.

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Oil prices increased on Tuesday as the European Union confirmed plans to tighten sanctions against Russia this week, and Germany said it was ready to support an immediate embargo on Russian oil. The European Commission may lift Hungary and Slovakia from an embargo on buying Russian oil, fearing that both countries are completely dependent on Russian oil.

Gold fell by 3% yesterday. At the moment, precious metals are under price pressure due to the monetary policy tightening. Tighter monetary policy is pushing up the national currency and government bond yields which are inversely correlated with gold and silver.

Asian stock markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.11%, Hong Kong’s Hang Seng (HK50) jumped by 4.01%, and Australia’s S&P/ASX 200 (AU200) lost 1.18%. The Central Bank of Australia raised its interest rate by 25 basis points to 0.35% for the first time in a decade and said it plans to tighten it even further. A statement from the bank said it was a good time to start reducing the emergency monetary support program that was introduced to help the Australian economy during the pandemic. The economy has proven resilient, and inflation rose faster than expected. Therefore, along with rising wages, it is appropriate to begin the process of normalizing monetary conditions. The outlook for economic growth in Australia also remains positive. However, uncertainty about the global economy remains due to continued disruptions caused by COVID-19, especially in China, the war in Ukraine, and declining consumer purchasing power due to rising inflation. According to the central forecast, Australia’s GDP growth will be 4.25% in 2022 and 2% in 2023.

Main market quotes:

S&P 500 (F) (US500) 4,155.38 +23.45 (+0.57%)

Dow Jones (US30) 33,061.50 +84.29 (+0.26%)

DAX (DE40) 13,939.07 -158.81 (-1.13%)

FTSE 100 (UK100) 7,544.55 0.0 (0.0%)

USD Index 103.63 +0.67 (+0.65%)

Important events for today:
  • – Australia RBA Interest Rate Decision (m/m) at 07:30 (GMT+3);
  • – Australia RBA Rate Statement (m/m) at 07:30 (GMT+3);
  • – German Unemployment Rate (m/m) at 10:55 (GMT+3);
  • – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
  • – Eurozone Producer Price Index (m/m) at 12:00 (GMT+3);
  • – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
  • – US JOLTs Job Openings (m/m) at 17:00 (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.


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