05 Jul

The RBA has aggressively raised the interest rate. A labor strike in Norway threatens to disrupt oil and gas production

July 5, 2022

By JustForex

Yesterday the US had a bank holiday due to Independence Day, and the stock market did not trade.

Stock markets in Europe traded without a single dynamic on Monday. Yesterday, German DAX (DE30) decreased by 0.31%, French CAC 40 (FR40) added 0.40%, Spanish IBEX 35 (ES35) lost 0.17%, British FTSE 100 (UK100) was up to 0.89%.

Annual inflation in Turkey soared to nearly 79%, reaching its highest level in 24 years. Consumer prices skyrocketed due to the Russian-Ukrainian war, high energy, and food prices, and a sharply devalued lira, the national currency. Turkey had experienced rapid growth in previous years. Still, President Recep Tayyip Erdoğan has refused to raise rates substantially in the past few years to reduce inflation, calling interest rates the “mother of all evils”. The result has been a sharp decline in the Turkish lira and much lower buying power. Erdogan has instructed the country’s Central Bank, which analysts say is independent of him, to cut borrowing rates repeatedly in 2020 and 2021, even as inflation continued to rise. Central Bank governors who disagreed with this course of action were fired. Turkey’s Central Bank had replaced four governors in two years.

Brent oil prices rose yesterday as a strike in Norway threatened to disrupt oil and gas production. The strike is expected to cut oil and gas production by 89,000 barrels per day, of which gas production will be 27,500 barrels per day. Overall, the demand outlook is also worrisome for investors amid tightening global financial conditions as the US Federal Reserve fights high inflation with rapid rate hikes.

Asian markets also traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.84%, Hong Kong’s Hang Seng (HK50) decreased by 0.13%, and Australia’s S&P/ASX 200 (AU200) added 1.11% on Monday.

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Analysts think Asian stocks may get a boost on the back of positive economic data and hints of easing Sino-US tensions. The White House will announce some Chinese tariff cuts later this week to dampen rising inflation and help restore optimism to the markets. Service sector activity in China reached its fastest pace in nearly a year, which also lifted investor sentiment.

Analysts at Nomura Bank believe the EU, Britain, Japan, South Korea, Australia, Canada, and the United States are likely to fall into recession over the next 12 months as central banks try to regain control of inflation by tightening policy too much.

The Reserve Bank of Australia raised its interest rate from 0.5% to 1.35%. In his speech, RBA Governor Phillip Lowe said the war in Ukraine and the strong demand for manufacturing capacity are putting upward pressure on prices. Inflation in Australia is high but slightly lower compared to other leading economies. The RBA predicts inflation will peak at the end of this year and fall back into the 2-3% range next year.

S&P 500 (F) (US500) 3,825.33 0 (0%)

Dow Jones (US30) 31,097.26 0 (0%)

DAX (DE40) 12,773.38 −39.65 (−0.31%)

FTSE 100 (UK100) 7,232.65 +64.00 (+0.89%)

USD Index 105.19 +0.06 (+0.05%)

Important events for today:
  • – Japan Services PMI (m/m) at 03:30 (GMT+3);
  • – Australia Retail Sales (m/m) at 04:30 (GMT+3);
  • – China Caixin Services PMI (m/m) at 04:45 (GMT+3);
  • – Australia RBA Interest Rate Decision (m/m) at 07:30 (GMT+3);
  • – Eurozone German Services PMI (m/m) at 10:55 (GMT+3);
  • – Eurozone Services PMI (m/m) at 11:00 (GMT+3);
  • – UK Services PMI (m/m) at 11:30 (GMT+3);
  • – UK BoE Financial Stability Report (m/m) at 12:30 (GMT+3);
  • – UK BoE Gov Bailey Speaks at 13:00 (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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