The RBA raised the interest rate by 0.25%. The ECB is set for a rate hike above the 4% level

By JustMarkets

The US Treasury yields rose yesterday ahead of Powell’s speech to Congress, which could give clues as to the US Federal Reserve’s future monetary policy. Investors and funds are starting to hedge and close their trades after the good rally in the last days of last week. At the close of the stock market on Monday, the Dow Jones (US30) increased by 0.12%, and the S&P 500 (US500) added 0.07%. The NASDAQ Technology Index (US100) decreased by 0.11%.

The US Federal Reserve Chairman Jerome Powell will address Congress today to present the central bank’s semiannual monetary policy report. He will address the Senate on Tuesday and the House of Representatives on Wednesday. His comments will be scrutinized for hints about whether a broader rate hike is being considered this month after recent data pointing to solid inflation. Powell’s hawkish bias could trigger a sell-off in the stock market in favor of the dollar index as a defensive asset. Conversely, any hint from Powell that the US Fed is abandoning its hawkish stance could cause Treasury yields to fall further, pushing the dollar index down and the stock indices up.

Shares of Apple (AAPL) jumped about 2% after Goldman Sachs issued a “buy” recommendation on the stock, citing the tech giant’s strong position in services. Meanwhile, shares of Tesla (TSLA) fell more than 2% after the electric-car maker cut prices in the US for the second time this year to boost demand. Tesla also suffered from Morgan Stanley ruling out the electric carmaker as a “better choice” in favor of Ferrari. Morgan Stanley raised its target Ferrari NV (RACE) price to $310 a share.

Stock markets in Europe were mostly up Monday. Germany’s DAX (DE30) added 0.48%, France’s CAC 40 (FR40) gained 0.34%, Spain’s IBEX 35 (ES35) jumped by 0.49%, Britain’s FTSE 100 (UK100) closed yesterday down by 0.22%.

The European Central Bank should raise interest rates by 50 basis points at each of the next four meetings as inflation remains resilient, said Robert Holzmann, head of the Austrian central bank. Holzmann is considered the ECB’s most hawkish spokesman. The four steps advocated by Holzmann would raise the deposit rate to 4.5%, well above the current projected rate of 4%. Holzmann also urged the ECB to accelerate the reduction of the bank’s balance sheet by stopping full reinvestment in its Pandemic Emergency Purchase Program (PEPP). All debt maturing in the PEPP scheme must now be fully reinvested in the market until 2024.

Asian markets were also mostly up yesterday. Japan’s Nikkei 225 (JP225) jumped by 1.11%, China’s FTSE China A50 (CHA50) fell by 0.80%, Hong Kong’s Hang Seng (HK50) ended the day up 0.17%, India’s NIFTY 50 (IND50) added 0.67%, and Australia’s S&P/ASX 200 (AU200) ended the positive by 0.62%.

China set its GDP growth target for this year at about 5%, lower than last year’s target of about 5.5%. Last week’s stronger-than-expected data on activity in China’s manufacturing and service sectors point to an economic recovery. Given that China is Australia’s largest export market, any improvement in China’s growth outlook could improve Australia’s growth prospects.

The Reserve Bank of Australia raised its benchmark interest rate by 25 basis points. The rate rose from 3.35% to 3.6%. The monetary policy statement indicates that the RBA is leaving the door open for further increases. The move was expected as inflation rose to its highest level in three decades last quarter, and there are still no signs of inflationary pressures easing.

The Bank of Japan has set the discount rate at 0.10% and remains in control of the yield curve (YCC), targeting a range of 0.50% near zero for Japanese government bonds (JGBs) for up to 10 years. The 10-year JGB trades steadily near the upper bound of 0.50%, forcing the BoJ to intervene frequently. Incoming Bank of Japan (BoJ) Governor Kazuo Ueda clarified last week that he would take the same stance as outgoing Governor Haruhiko Kuroda. The BoJ will meet this week, where current governor Haruhiko Kuroda will speak for the last time in office.

S&P 500 (F) (US500) 4,048.42 +2.78 (+0.069%)

Dow Jones (US30)33,431.44 +40.47 (+0.12%)

DAX (DE40) 15,653.58 +75.19 (+0.48%)

FTSE 100 (UK100) 7,929.79 −17.32 (−0.22%)

USD Index 104.53 −0.50 (−0.48%)

• – Australia Retail Sales (m/m) at 02:30 (GMT+2);
• – China Trade Balance (m/m) at 05:00 (GMT+2);
• – Australia RBA Interest Rate Decision (m/m) at 05:30 (GMT+2);
• – Australia RBA Rate Statement (m/m) at 05:30 (GMT+2);
• – Switzerland Unemployment Rate (m/m) at 08:45 (GMT+2);
• – US Fed Chair Jerome Powell Testifies at 17:00 (GMT+2);
• – Switzerland SNB Chairman Jordan speaks at 20:30 (GMT+2);
• – Australia RBA Gov Lowe speaks at 23:55 (GMT+2).

By JustMarkets

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.