Investors focus on Fed interest rate meeting today

by JustForex

US stock indices continued to decline on Tuesday as investors are preparing for an aggressive interest rate hike by the Federal Reserve today. The US central bank is expected to raise rates by 75 basis points after a sharper-than-expected rise in consumer prices in May. Also, investors’ attention was focused on the Producer Price Index (PPI), which could show the Fed’s additional inflation criteria. However, the data did not provide any new clues to the markets. The US PPI for May was 10.8% y/y, below expectations and unchanged from April’s data. In addition, the core PPI for May was below consensus expectations. At the stock market’s close, the Dow Jones Index (US30) decreased by 0.49%, and the S&P 500 Index (US500) lost 0.37%. The Technology Index NASDAQ (US100) fell by 0.67%. At the end of the day, all three indices were down. The Treasury yields reached a ten-year high, and the dollar reached a 20-year peak.

Wall Street’s major indices have lost 16% to 30% of their value this year amid economic uncertainty caused by labor and supply chain shortages, rising inflation, the effects of the Russian invasion of Ukraine, and aggressive monetary policy. Many analysts have begun to lean toward a recessionary scenario and balance their portfolios by reducing stakes in companies.

Stock markets in Europe also declined yesterday, following the US. German DAX (DE30) decreased by 0.91%, French CAC 40 (FR40) lost 1.20%, Spanish IBEX 35 (ES35) decreased by 1.43%, British FTSE 100 (UK100) was down by 0.25%. Inflation in Germany increased by 0.9% last month to 7.9% year-on-year (the highest level since 1973). The main reason for the high inflation is still rising energy prices. At the same time, the ZEW economic sentiment indicator for Germany rose last month. Also, the report indicates that inflation expectations in the Eurozone have declined again. Still, ECB officials make it clear that rising inflation across the EU worries policymakers.

On Tuesday, oil prices fell on fears that the US Federal Reserve would surprise markets with a more aggressive interest rate hike. Oil prices were also pressured by reports that Ron Wyden, chairman of the US Senate Finance Committee, plans to pass legislation imposing a 21% income tax on oil companies’ profits. But it should be noted that the energy market deficit isn’t going anywhere. OPEC+ producers are struggling to meet production quotas, and Russia is facing a ban on its oil because of the war in Ukraine. The supply shortage is exacerbated by falling exports from Libya amid a political crisis. Fundamentally, there is no reason for oil prices to fall at the moment.

Asian equity markets traded lower yesterday. Japan’s Nikkei 225 (JP225) fell by 1.32%, Hong Kong’s Hang Seng (HK50) was flat, and Australia’s S&P/ASX 200 (AU200) decreased by 3.55%.

China’s retail sales and industrial production data for May were slightly better than forecasted but still showed the impact of the quarantine due to the Coronavirus. China’s industrial production rose 0.7% in May, while retail sales fell to 6.7% year-over-year in May.

Main market quotes:

S&P 500 (F) (US500) 3,735.88 −13.75 (−0.37%)

Dow Jones (US30) 30,365.95 −150.79 (−0.49%)

DAX (DE40) 13,304.39 −122.64 (−0.91%)

FTSE 100 (UK100) 7,187.46 −18.35 (−0.25%)

USD Index 105.51 +0.43 (+0.41%)

• – China Industrial Production (m/m) at 05:00 (GMT+3);
• – China Unemployment Rate (m/m) at 05:00 (GMT+3);
• – China Retail Sales (m/m) at 05:00 (GMT+3);
• – Eurozone French Consumer Price Index (m/m) at 09:45 (GMT+3);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
• – US Retail Sales (m/m) at 15:30 (GMT+3);
• – US Empire State Manufacturing Index (m/m) at 15:30 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
• – Eurozone ECB President Lagarde Speaks at 19:20 (GMT+3);
• – US Fed Interest Rate Decision at 21:00 (GMT+3);
• – US FOMC Monetary Policy Statement at 21:00 (GMT+3);
• – US FOMC Economic Projection at 21:00 (GMT+3);
• – US FOMC Press Conference at 21:30 (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.