The US Federal Reserve is ready to raise rates by 75 bps as soon as this week. Stock indices reached the bear market border

by JustForex

On Monday, the US indices fell sharply and moved into bear market territory after stocks of rising companies collapsed. Treasury yields rose on expectations that the Federal Reserve will be tougher on inflation. The yield on 10-year Treasuries rose to its highest level since 2011 amid fears that the Fed will be forced to resort to an acceleration of monetary tightening after Friday’s unexpected rise in inflation data. According to the WSJ, Fed officials may approve a 0.75% interest rate hike at their meeting tomorrow. As the stock market closed Friday, the Dow Jones Index (US30) decreased by 2.79%, and the S&P 500 index (US500) fell by 3.87%. The Technology Index NASDAQ (US100) lost 2.22% yesterday. At the end of the day, all three indices decreased, and the S&P 500 (US500) and NASDAQ (US100) hit a 52-week low on Monday.

Amid the Fed’s more aggressive policy, there are also growing expectations that the Central Bank may accelerate the recession, which will lead to an even greater decline in consumer incomes. This would hurt many sectors of the economy.

The US lawmakers are pushing for new government powers to block Americans from investing in China.

Stock markets in Europe also fell yesterday following the US indices. The German DAX (DE30) decreased by 2.43% on Monday, French CAC 40 (FR 40) fell by 2.67%, Spanish IBEX 35 (ES35) lost 2.47%, and British FTSE 100 (UK100) was down by 1.53%. Weak data on the UK economic growth raise concerns about the slowdown in economic growth in the region. Data released yesterday showed that the UK’s economy contracted in April. GDP fell by 0.3%, while manufacturing, services, and construction also declined.

Oil prices rose on Monday as a shortage of global inventories outweighed concerns that demand will be pressured by the outbreak of COVID-19 cases in Beijing and further interest rate hikes. Oil supplies are now extremely limited as OPEC, and its allies are unable to fully meet promised production increases due to capacity shortages at many producers, sanctions against Russia, and the turmoil in Libya that has led to production cuts.

The yellow metal’s rise to five-week highs on Friday reversed sharply on Monday amid investors’ flight from risk ahead of the Federal Reserve’s third expected rate hike. The pressure on the yellow metal was amplified by a rally in US benchmark bond yields. Gold is inverse to government bond yields, so an aggressive Federal Reserve policy negatively affects gold and silver prices.

Asian markets also fell sharply yesterday after Wall Street hit bear market territory and bond yields rose to a two-decade high on fears that aggressive interest rate hikes in the US will push the world’s largest economy into recession. Japan’s Nikkei 225 (JP225) decreased by 3.01% yesterday, Hong Kong’s Hang Seng (HK50) fell by 3.39% yesterday, and Australia’s S&P/ASX 200 (AU200) was down by 1.25%.

The Japanese government and the Central Bank issued a rare joint statement expressing concern about the yen’s sharp decline, and some investors fear either currency intervention or indecision to hold bond yields.

According to the NAB, the Australian economy maintained its momentum in the second quarter, and most businesses are in a strong position despite high inflation. But analysts say rising interest rates and global growth risks have yet to have a significant impact on Australia’s economic trajectory.

South Korea’s foreign minister said yesterday that any provocation by North Korea, including a nuclear test, would be met with a united and firm response.

Main market quotes:

S&P 500 (F) (US500) 3,749.91 −150.95 (−3.87%)

Dow Jones (US30) 30,518.06 −874.73 (−2.79%)

DAX (DE40) 13,427.03 −334.80 (−2.43%)

FTSE 100 (UK100) 7,205.81 −111.71 (−1.53%)

USD Index 105.22 +1.07 (+1.03%)

• – Australia NAB Business Confidence at 04:30 (GMT+3);
• – UK Average Earnings Index (m/m) at 09:00 (GMT+3);
• – UK Claimant Count Change (m/m) at 09:00 (GMT+3);
• – UK Unemployment Rate (m/m) at 09:00 (GMT+3);
• – Eurozone German Consumer Price Index (m/m) at 09:00 (GMT+3);
• – Eurozone German ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
• – Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+3);
• – US Producer Price Index (m/m) at 15:30 (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.