InvestMacro

by JustForex

Investors remain concerned about the war in Ukraine, which has sent commodity prices skyrocketing, worsening the outlook for already high inflation. The 10-year US Treasury bond yields rose on Monday, while the 2-year/10-year yield curve remained inverted. The curve inversion is seen as a harbinger of a recession in the next year or two.

But there is another opinion. An inverted Treasury yield curve tells investors more about inflation than recession prospects, says an experienced Wall Street strategist. “The 2/10 inversion of the nominal Treasury bond curve does not mean slower growth, but rather lower inflation in 2023 and beyond,” wrote Barry Knapp, managing partner of Ironsides Economics.

This Summer, the US economy will fall into recession as inflation eats into consumer spending, warns former Fed official Lawrence Lindsey. “Inflation is undermining the purchasing power of consumers, and they will have to cut spending,” he said.

The Dow Jones Index (US30) increased by 0.30% yesterday, the S&P 500 Index (US500) gained 0.81%, and the NASDAQ Technology Index (US100) jumped by 1.90%.

Twitter shares rose 17% yesterday as it became known that Elon Musk bought a 9.2% stake. Tesla shares rose yesterday after the company reported record first-quarter deliveries of electric vehicles on Saturday.

European stock markets were mostly up yesterday. Germany’s DAX (DE30) gained 0.50%, France’s CAC 40 (FR40) jumped by 0.70%, Spain’s IBEX 35 (ES35) added 0.20%, and the British FTSE 100 (UK100) increased by 0.28%.

The US is actively working with Europe to tighten sanctions against Russia. The fifth package of EU sanctions against Russia is likely to affect aviation leasing, imports and exports of jet fuel, metal products, luxury goods, and, possibly, Russian President Vladimir Putin personally. EU countries are still arguing about including an embargo on energy imports from Russia in the sanctions. French President Emanuel Macron called for tough new anti-Russian sanctions: “We need new sanctions against Russia. New sanctions should apply to coal and gasoline.”

Poland, Latvia, Lithuania, and Estonia began the process of total isolation from Russia and Belarus, thereby closing their land routes for the delivery of goods to these countries.

Gold is falling as US government bonds are rising. Analysts expect gold and silver prices to fall in the medium term as the US Federal Reserve tightens monetary policy. The recent rise in gold is purely speculative, as a temporary safe haven for investors from inflation, as well as from the war in Ukraine.

Oil is rising again amid new sanctions against Russia. World oil futures increased more than 3% on Monday. “Geopolitical tensions are likely to keep oil prices higher in the coming days, despite efforts of the US and its allies,” said Tina Teng, market analyst at CMC Markets APAC & Canada, referring to the coordinated output of oil by consuming countries.

Asian markets traded positive yesterday. Japan’s Nikkei 225 (JP225) gained 0.25% yesterday, Hong Kong’s Hang Seng (HK50) jumped by 2.10%, and Australia’s S&P/ASX 200 (AU200) ended the day with +0.27%. Australia’s central bank opened the door for its first interest rate hike on Tuesday. The Reserve Bank of Australia (RBA) kept the interest rate at 0.1%. However, inflation has risen significantly and is likely to continue to rise, while unemployment fell faster than expected to 4.0%. The RBA wants to avoid another recession or let high and potentially damaging inflation persist until 2023. Markets took the change as a move toward a possible tightening and lifted the Australian dollar 0.7% to a nine-month high. Earlier, RBA chief Lowe said that the first hike would come later this year, while markets have long been betting on an earlier hike given the global rise in inflation.

The World Bank lowered its 2022 GDP forecast for East Asia due to the war in Ukraine. China’s economy is expected to grow 5.0% this year, compared to the previous estimate of 5.4%. But growth could slow to 4.0% if conditions worsen and government policies ease.

Main market quotes:

S&P 500 (F) (US500) 4,582.64 +36.78 (+0.81%)

Dow Jones (US30) 34,921.88 +103.61 (+0.30%)

DAX (DE40) 14,518.16 +71.68 (+0.50%)

FTSE 100 (UK100) 7,558.92 +21.02 (+0.28%)

USD Index 98.98 +0.35 (+0.36%)

• – Australia RBA Interest Rate Decision at 07:30 (GMT+3);
• – Australia RBA Rate Statement at 07:30 (GMT+3);
• – German Services (m/m) PMI at 10:55 (GMT+3);
• – Eurozone Services (m/m) PMI at 11:00 (GMT+3);
• – UK Services PMI (m/m) at 11:30 (GMT+3);
• – US ISM Services PMI (m/m) at 17:00 (GMT+3);
• – US FOMC Member Brainard Speaks at 18:05 (GMT+3);
• – US FOMC Member Williams Speaks at 21:00 (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.

By Lukman Otunuga Senior Research Analyst, ForexTime 

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

By Orbex

The AUDUSD has remained relatively flat the last couple of weeks, despite ongoing appreciation in the commodity prices. The Aussie hasn’t been able to capitalize on the general inflation environment despite being a commodity currency. In part, this is due to the outlook for the RBA.

So far, the RBA has loathed raising rates. Part of that can be because of the delayed economic impact of the pandemic, as case numbers shot up at the start of the year.

While other central banks were going to normalize rates, the RBA was faced with the effects of lockdowns. Now, economic measures are lifting, but case numbers are starting to climb again.

Lack of growth support

Typically, the current scenario would encourage carry trading, with the BOJ keeping ultra-low rates. That said, commodity currencies would have higher interest rates. Under such circumstances, the AUD would get a boost. And, in fact, the currency did start inching higher at the start of the year.

If the RBA keeps rates at the record low level of 0.1%, however, there is likely to be little interest in carry trade, which could keep the pair from moving higher.

Nonetheless, things could change in the future.

Inflation has been moving significantly above target. The RBA acknowledges that unemployment has hit a structural level, increasing the risk of a wage-price spiral that could require aggressive intervention in terms of monetary policy.

So, the scene is set for a rate hike, but the consensus is that the RBA won’t pull the trigger at the next meeting.

Why no rate hike?

The latest survey of Australian economists shows that 93% expect the RBA to keep the rate on hold. The very small minority of dissenters expect a “half” rate hike, bringing rates to 0.25%.

Unsurprisingly, the market seems to be siding with the majority and it’s not pricing in a rate hike. This means that the event could be relatively calm, with the focus on what’s coming up next. In turn, this begs the question of why the RBA is unlikely to take action at this meeting?

The answer is in two parts. Firstly, Australia calculates inflation on a quarterly basis, and the RBA is working on inflation from last year. We won’t get the latest inflation data until later in the month. Barring some kind of emergency, the RBA is unlikely to make a move without having the latest data on hand.

When could the hike come?

Secondly, there’s the upcoming general election on May 21st.

Generally, the RBA tries to avoid making significant moves (such as starting a raising cycle) during the campaign period. Unless, of course, there is some kind of emergency. The next meeting is on May 3rd, meaning that if the RBA chooses to wait until after the election, we might not see a rate hike until the June 7th meeting.

At the last meeting, the MPC members agreed that it was too early to be looking at raising rates. They cited core inflation not being “stable” above target. The focus could be on the accompanying statement from the RBA, to see if there is any comment on how “stable” the inflation is. If inflation is “concerning”, it could signal a rate hike in the next couple of meetings.

Test your strategy on how the AUD will fare with Orbex – Open Your Account Now.

Article by Orbex

Orbex is a fully licensed broker that was established in 2011. Founded with a mission to serve its traders responsibly and provides traders with access to the world’s largest and most liquid financial markets. www.orbex.com