InvestMacro

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.

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%)

• – 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.

by JustForex

The US stock indices finished Tuesday’s trading with a confident growth. By the close of the stock market, the Dow Jones index (US30) gained 1.82%, the S&P500 index (US500) added 2.14%, and the NASDAQ technology index (US100) jumped by 2.92%.

The long-awaited FOMC meeting in the US will take place today, where analysts expect to see an interest rate hike. Investors should also keep a close eye on Jerome Powell’s speech at the press conference. There is a 100% chance that the US Federal Reserve will raise interest rates by at least 25 basis points today. Analysts are confident that the rate will rise at every Federal Reserve meeting until the end of the year. But with inflation approaching 8%, many believe that rising rates to 2% by the end of the year will not be enough to dampen consumer price growth, so the Fed needs to start cutting the balance sheet. The US stock market has already included a more aggressive scenario for a rate hike, so now the indices can significantly increase in price even despite the growth of the dollar index.

The S&P Dow Jones will exclude Russian and Belorussian bonds from its indices after March 31.

Tesla has raised the price of its vehicles due to a sharp increase in the price of nickel, a key component in electric vehicle batteries.

Major European indices traded without a single trend yesterday. German DAX (DE30) decreased by 0.08%, French CAC 40 (FR40) fell by 0.23%, Spanish IBEX 35 (ES35) gained 0.02%, British FTSE 100 (UK100) lost 0.25%. According to analysts, European markets have already put very negative scenarios in the prices. The ZEW Indicator of Economic Sentiment for the Eurozone and Germany showed the biggest drop since the study began in 1991. This indicates a high probability that Europe will face stagflation (a slowdown in economic growth with high inflation). The war in Ukraine significantly worsened Europe’s economic prospects. Another round of talks between Russia and Ukraine ended in vain. With the ECB not planning to tighten monetary policy anytime soon, analysts expect a sharp slowdown in Europe’s economic indicators.

Oil prices have somewhat stabilized. In previous days, investors sold their contracts as oil reached analysts’ targets. Oil prices are expected to fall further only if the US manages to negotiate an increase in supply. Given that the deal with Iran failed again, analysts are confident that oil prices will remain high. Today the US will publish a report on crude oil inventories which will have a significant impact on oil prices.

Yesterday, Japan’s Nikkei 225 (JP225) gained 0.15%, Hong Kong’s Hang Seng (HK50) decreased by 5.72%, and Australia’s S&P/ASX 200 (AU200) lost 0.73%. Japan’s industrial production fell by 0.8% month-over-month in January 2022, down from a 1% drop a month earlier. Imports jumped to 34% in annual terms, while exports also accelerated. China is experiencing its biggest COVID-19 surge since 2020. Container ships lines at China’s major ports are lengthening by the day as the COVID-19 outbreak threatens to unleash a new wave of disruption to global supply chains. Due to restrictions, Tesla has suspended operations at its Shanghai plant for two days. South Korea’s unemployment rate fell to a record low of 2.7% in February from 3.6%.

Main market quotes:

S&P 500 (F) (US500) 4,262.45 +89.34 (+2.14%)

Dow Jones (US30) 33,544.34 +599.10 (+1.82%)

DAX (DE40) 13,917.27 -11.84 (-0.085%)

FTSE 100 (UK100) 7,175.70 -17.77 (-0.25%)

USD Index 99.04 +0.04 (+0.04%)

• – Japan Industrial Production (m/m) at 06:30 (GMT+2);
• – US Retail Sales (m/m) at 14:30 (GMT+2);
• – Canada Consumer Price Index (m/m) at 14:30 (GMT+2);
• – US Crude Oil Reserves (w/w) at 16:30 (GMT+2);
• – US FOMC Meeting Minutes at 20:00 (GMT+2);
• – US Fed Interest Rate Decision at 20:00 (GMT+2);
• – US FOMC Press Conference at 20:30 (GMT+2);
• – New Zealand GDP (q/q) at 23:45 (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.

By Orbex

Firstly, let’s get this out of the way: the Fed is going to raise rates at the conclusion of their two-day meeting tomorrow. 98.3% of experts agree that the FOMC will decide to raise rates by 25bps. The other 1.7% think it will be 50bps.

The Ukraine factor

Throughout most of last month, there was quite a bit of speculation that the Fed might take a more aggressive stance at the upcoming meeting.

But then US benchmark indices fell into a bear market after Russia invaded Ukraine. Analysts assumed that now that the risk situation had increased, the Fed might therefore be more cautious.

But then last week the ECB cut back on their asset purchases in a surprisingly hawkish move. And the reality is that the assumptions around the situation in Ukraine might be a bit misplaced.

That said, the traditional way of viewing risk events around monetary policy might not work this time around.

Why it’s different

Inflation is nearly quadrupling the Fed’s target. In fact, since the last report, we saw wheat prices hitting a record high, while crude prices have been persistently above $100/barrel, and WTI pushed over $125/barrel. That would push inflationary pressures, which are a bigger concern for the Fed right now, than the potential move towards safe haven assets.

This is why some analysts have advanced the theory that the Fed might not only raise rates but announce they will start rolling off their balance sheet as well. This would likely be a hawkish move – pulling liquidity from an already stressed market. In turn, this could weigh on the stock market and boost the dollar a little more.

The future is what matters

A stronger dollar wouldn’t be good for the economy because it would make life hard for exporters. Nonetheless, it would contribute to lowering inflation.

During the last meeting, according to the minutes, the Fed seemed to be pretty satisfied with where the job market was. That means their attention now is on getting inflation under control. And that means for once the market might be underestimating how far the Fed could go.

But, that’s unlikely to be the situation in the long term. A market move in reaction to a surprise by the Fed could fade. The market is pricing in 6 rate hikes this year, under the current situation. The latest dot-plot shows that the Fed might do half as many hikes.

Forcing the Fed’s hand

The consensus in the market is that the Fed is underestimating future inflation. And that’s why they aren’t looking to raise rates.

Tomorrow we get the Fed’s latest inflation survey. If they are expecting higher inflation, the market will probably see this as a hawkish move.

The bottom line is that with such a strong consensus about a rate hike, the market reaction is likely going to depend mostly on the Fed’s outlook, and the chances that there will be a rate hike at the next meeting. Right now there is almost an even split among analysts about whether or not rates will kick up by 25bps at the May meeting.

Test your strategy on how the USD 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