Oil prices continue to fall. The ECB is going to raise interest rates by 0.75%

September 8, 2022

Despite the fact that the Federal Reserve officials reiterated the need to tighten monetary policy to curb inflation, US indices were trading in positive territory on Wednesday. The technology sector, which has been under pressure in recent days, was also supported by lower Treasury yields. At the close of the stock market yesterday, the Dow Jones Index (US30) increased by 1.40% and the S&P 500 Index (US500) added 1.83%. The NASDAQ Technology Index (US100) jumped by 2.14% on Wednesday.

Fed Vice President Lael Brainard said Wednesday that monetary policy should be restrictive for some time, adding that the central bank would need to see several months of low inflation figures to see if inflation is slowing.

Shares of Apple Inc. rose modestly after the introduction of a slew of new products, including the iPhone 14, the iPhone 14+, the top models of the iPhone 14 Pro, and the larger iPhone 14 Max. Analysts say Apple’s new phone will cause a strong update cycle, as many iPhone buyers haven’t updated their phones in years.

Meanwhile, Twitter shares added more than 5% after a Delaware court rejected Elon Musk’s request to delay a lawsuit that Twitter had launched to prevent the billionaire from backing out of a deal to buy the social network.

The Bank of Canada held its fourth consecutive interest rate hike in an effort to lower inflation from a four-year high. Policymakers led by Governor Tiff Macklem raised the benchmark overnight rate by 75 basis points to 3.25% on Wednesday, giving Canada’s Central Bank the highest interest rate among major advanced economies.

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Equity markets in Europe traded flat yesterday. German DAX (DE30) gained 0.53%, French CAC 40 (FR40) added 0.02%, Spanish IBEX 35 (ES35) increased by 0.17%, British FTSE 100 (UK100) closed on Tuesday down 0.86%.

The ECB will hold its monetary policy meeting today, where analysts expect to see an excessive interest rate hike of 0.75%. Taking into consideration yesterday’s EUR strengthening, there is a good reason to believe that investors are already buying European currency in the expectation that the ECB will hold an uncharacteristic aggressive rate hike. But according to analysts, irrespective of the euro reaction direction on Thursday, there is a high probability that the effect on the currency rate will be temporary. This is because EUR/USD has been reacting weakly to ECB rate expectations lately, as the energy crisis continues to shape the dynamics of the pair.

According to analysts, the energy crisis in Europe will only worsen this winter as rising fuel prices reduce consumer demand and force factories to cut production or close, which is a very bad scenario for Europe.

Oil prices fell by 5% yesterday. Analysts see the following reasons for the drop in oil prices in recent days: the twenty-year high of the dollar, which increased the cost of buying crude oil for other currencies; growing quarantine measures in China; concerns about the third consecutive 75 basis point increase in rates by the US Federal Reserve at a meeting on September 21; G7 efforts to limit Russia’s selling price of oil in order to deprive Moscow of the maximum revenue it seeks from energy exports to finance its war against Ukraine; the finish line in negotiations over the Iran nuclear deal, which could potentially return hundreds of thousands of barrels of Iranian oil to the world market.

“There are fears that an angry Putin will stop all oil and gas supplies to Europe to teach the West and the world a lesson for trying to unite against Mother Russia,” said John Kilduff, a partner at the New York-based energy hedge fund Again Capital.

Gas prices in Europe decreased by 14%. Gas prices are down amid reports that European gas storage facilities are filling ahead of schedule.

Asian markets were trading lower yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.71% yesterday, Hong Kong’s Hang Seng (HK50) lost 0.83%, and Australia’s S&P/ASX 200 (AU200) was 1.42% lower by the end of the day.

The Japanese currency keeps losing ground, and the reason for that is not only the interest rate differences between the Bank of Japan and other central banks. Another problem for the yen is the change in the trade balance. The country used to have a constant trade surplus, but with energy prices skyrocketing and Japan importing most of its energy from abroad, it is facing a trade deficit. Combined with the ban on tourists visiting the island, demand for the yen dropped sharply.

Australia’s index fell at the opening market on Thursday after data showed the country’s trade balance contracted more than expected in July.

S&P 500 (F) (US500) 3,979.87 +71.68 (+1.83%)

Dow Jones (US30) 31,581.28 +435.98 (+1.40%)

DAX (DE40) 12,871.44 12,915.97 (+0.35%)

FTSE 100 (UK100) 7,237.83 −62.61 (−0.86%)

USD Index 109.55 −0.66 (−0.60%)

Important events for today:

– Japan GDP (q/q) at 02:50 (GMT+3);
– Australia RBA Governor Lowe Speaks at 06:05 (GMT+3);
– Switzerland Unemployment Rate (m/m) at 08:45 (GMT+3);
– Eurozone Marginal Lending Facility (m/m) at 15:15 (GMT+3);
– Eurozone ECB Monetary Policy Statement (m/m) at 15:15 (GMT+3);
– Eurozone ECB Interest Rate Decision (m/m) at 15:15 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– Eurozone ECB Press Conference at 15:45 (GMT+3);
– US Fed Chair Powell Speaks at 16:10 (GMT+3);
– Eurozone ECB President Lagarde Speaks at 17:15 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3);
– US Crude Oil Reserves (w/w) 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.

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Oil prices continue to fall. The ECB is going to raise interest rates by 0.75%