17 Mar

The US Federal Reserve is beginning to tighten monetary policy

March 17, 2022

by JustForex

Yesterday, the US Federal Reserve raised the interest rates by 0.25%. In addition, the Fed warned of further increases. A total of 7 hikes are expected this year and four more next year. Fed policymakers see the risk of further inflationary pressures (the forecast for 2022 increased to 4.3% from 2.6%) and economic slowdowns (the forecast for GDP growth was reduced to 2.8% from 4%). The Fed will decide on a balance sheet reduction at its upcoming meetings and consider a more rapid stimulus reduction.

“Russia’s invasion of Ukraine is causing tremendous human and economic hardship. The implications for the US economy are highly uncertain, but in the short term, the invasion and related events are likely to create additional upward pressure on inflation and reduce economic activity,” the Fed said in a statement.

US stock indices ended Tuesday’s trading with a confident gain. By the close of the trading day, the Dow Jones index (US30) gained 1.55%, the S&P 500 index (US500) added 2.24%, and the NASDAQ technology index (US100) jumped by 3.77%.

Major European indices were trading in the green zone yesterday. German DAX (DE30) gained 3.76%, French CAC 40 (FR40) jumped by 3.68%, Spanish IBEX 35 (ES35) added 1.75%, British FTSE 100 (UK100) increased by 1.62%. Consumer price index data will be published in Europe today. Analysts expect the inflation rate in the Eurozone to remain unchanged. If the actual value is higher than the forecasted one, it may have a positive impact on the euro and a negative impact on European stock indices as higher inflation always increases the likelihood that the central bank will start tightening its monetary policy. Investors should also keep a close eye on what ECB head Christine Lagarde says. The Bank of England will hold its monetary policy meeting today. It is expected that the Bank of England will raise the rate by 0.25% once again. Thus, the interest rate in the UK will be 0.75%, and in the US – 0.5%. Such differences will play in favor of strengthening the British currency. The question is how the Bank of England will further regulate the monetary policy.

Austrian Raiffeisenbank is considering leaving its subsidiary bank in Russia.

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Five airlines of Alexei Isaikin’s “Volga-Dnepr,” Russia’s largest air cargo group specializing in worldwide shipments, canceled flights. The European Aviation Safety Agency (EASA) has revoked the certificates of the group’s repair organization, “Volga-Dnepr Technics Moscow.” According to the regulator’s decision, “AirBridgeCargo,” “Atran,” and “Volga-Dnepr” were left without valid safety certificates allowing them to fly in the airspace of the European Union.

The American printing equipment manufacturer Xerox has suspended deliveries to Russia and provided cash grants to its employees in Ukraine.

On Thursday, oil prices increased about 3% after the International Energy Agency (IEA) said markets could lose three million barrels of Russian oil and oil products a day starting in April. The supply loss will be much greater than the expected drop in demand.

Gold rose slightly in Asian trading Thursday morning but remained near a three-week low at the previous session as a US Federal Reserve interest rate hike pushed up US Treasury yields, which inversely correlated to gold and silver.

Asian stock indices increased at the end of the day yesterday. Japan’s Nikkei 225 (JP225) gained 1.64% yesterday, Hong Kong’s Hang Seng (HK50) jumped by 9.08%, Australian S&P/ASX 200 (AU200) added 1.10%.

On Thursday, Bank of Japan Governor Haruhiko Kuroda reduced the probability of inflation reaching the 2% target and argued for maintaining an ultra-soft monetary policy. A former senior Japanese currency diplomat said that tightening monetary policy or intervening in the currency market will do little to reverse the undesirable fall in the yen, causing fuel and commodity prices to rise.

The reduction in new COVID-19 cases in China has raised hopes that the authorities will be able to lift bans and allow plants to resume production in quarantined cities. The Chinese government intends to maintain the stability of financial markets and plans to take measures to stimulate economic growth in the country, Xinhua news agency reported after a meeting of the Financial Stability and Development Committee of the State Council of China.

New Zealand’s GDP grew 3% (forecast +3.6%) quarter-on-quarter and 3.1% year-on-year in the fourth quarter of 2021.

Australian employment data for February 2022 showed an unemployment rate of 4%. Unemployment has fallen to its lowest level since 2008, increasing pressure for an early interest rate hike from the Reserve Bank of Australia.

Main market quotes:

S&P 500 (F) (US500) 4,357.86 +95.41 (+2.24%)

Dow Jones (US30) 34,063.10 +518.76 (+1.55%)

DAX (DE40) 14,440.74 +523.47 (+3.76%)

FTSE 100 (UK100) 7,291.68 +115.98 (+1.62%)

USD Index 98.39 -0.70 (-0.71%)

Important events for today:
  • – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
  • – Eurozone ECB President Lagarde Speaks at 11:30 (GMT+2);
  • – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
  • – UK BoE Interest Rate Decision at 14:00 (GMT+2);
  • – UK BoE Monetary Policy Summary at 14:00 (GMT+2);
  • – US Building Permits (m/m) at 14:30 (GMT+2);
  • – US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
  • – US Philadelphia Fed Manufacturing Index (m/m) at 14:30 (GMT+2);
  • – US Industrial Production (m/m) at 15:15 (GMT+2);
  • – US Natural Gas Storage (w/w) at 16:30 (GMT+2).

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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