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Fed Rate Hike Expectations Push US Dollar Higher

US companies’ earnings have been mixed, the US dollar strengthens, oil and gold are dropping as investors expect the Fed to raise interest rates to curb inflation. In the meantime, the war in Ukraine and lockdowns in China keep looming over the markets affecting investors’ sentiment.

Stock Markets

Mixed financial results from major U.S. firms are dampening a better-than-expected earnings season for the first quarter of the year. April’s US shares plunge was one of the worst since the pandemic disrupted the markets in 2020. The S&P 500 recorded its fourth consecutive weekly decline driving its performance down 13.3% for the first four months of 2022. In the meantime, the tech-heavy Nasdaq declined 13.3% in April only, recording its highest monthly fall since October 2008.

Rising U.S. equity futures though, signal a pause in the stock slide which was fueled by concerns over high inflation, rising interest rates and covid-related lockdowns in China.

Trading Forex

The US dollar strengthened, while the offshore yuan weakened. The Chinese currency fell after economic data indicated a sharp decline in Chinese economic activity as lockdowns kept factories closed and disrupted supply chains. Chinese and Hong Kong markets are closed today due to the Labor Day holiday.

The Fed Attempts to Curb Inflation

The Federal Reserve is expected to increase rates by 50 basis points – the biggest increase in 22 years – on Wednesday and in June to contain the soaring inflation. Fed Chair, Jerome Powell, has expressed his confidence in the Fed being able to achieve a soft landing. However, concerns about how high increases need to go to fight inflation and whether a recession will be triggered remain. At the same time, the Bank of England is also likely to hike its interest rates.

Prices are pushed higher due to the increasing costs of commodities covering products from oil to food, caused in part by the war in Ukraine. The price pressures could escalate as the European Union is set to propose a ban on Russian oil by the end of 2022.

Trading Oil

Oil prices fell today, Monday, as weak economic growth and declining factory activity in China, the world’s second-largest economy and top oil importer, fueled concerns over oil demand. The nationwide covid lockdowns caused the factory activity to contract and fall to its lowest level since February 2020.

Trading Gold

Gold prices dropped today, Monday. Demand for bullions fell due to rising U.S. Treasury yields as the Fed is expected to raise interest rates in an effort to rein in the increasing inflation.

What to Watch out for this Week:

Earnings season continues with reports from BMW, Hilton, Pfizer, Uber, Airbnb, Airbus, Starbucks, Shell, and more.

Tuesday
Reserve Bank of Australia rate decision

Wednesday
Fed Rate Decision & briefing with Fed Chair Jerome Powell
EIA Crude Oil Inventory Report

Thursday
Bank Of England Rate Decision & Briefing
OPEC+ meeting

Friday
U.S. April Jobs Report (including NFP payrolls, unemployment rate)