The US stock indices fell sharply following the Fed’s statements yesterday. What happened? For now, the Federal Reserve maintained all stimulus programs and left interest rates unchanged. But the inflation outlook was changed from “temporary” to “stable,” followed by the increase (from 2.4% to 3.4% annually), which triggered a sharp sell-off in the market. At the Fed press conference, Jerome Powell said that the Fed is ready to change its monetary policy any minute if the situation changes. First of all, the discussion is about a possible cut of the QE program at the next Fed meeting, as the Fed officials expect stronger employment reports during summer. The interest rate is planned to increase no earlier than in 2023. Amid this news, the entire stock market has shifted into the red zone. This does not mean that the uptrend in the indices is over. The monetary policy remains the same until August, so after the correction, analysts expect the growth of quotes on the indices.
European stock indexes reacted more calmly to the Fed’s statements. German index DAX decreased by 0.12%, but the British FTSE 100 increased by 0.17%. The companies specializing in renewable energy sources became the growth leaders. In general, the fundamental picture of the eurozone remains positive, so investors should not expect significant changes before the end of the summer. Today the Swiss National Bank will report on the interest rate. The analysts expect that the rate will remain at the same level.
Gold futures fell sharply yesterday. This is not surprising as gold has an inverse correlation to the dollar index and especially to government bond yields, which rose sharply yesterday considering the Federal Reserve statement. Right now, the situation with precious metals is contradictory. Investors have to wait for the reaction of the markets.
Oil prices declined slightly as the dollar index got stronger. But the reserves of crude oil declined sharply last week, so with the increase in demand, the upward movement in oil is likely to continue. Natural gas inventories are expected to report today, which, like oil, is showing an uptrend.
Asian stock indices followed the US markets. Japan’s Nikkei 225 index fell by 0.93%, and Australia’s ASX200 decreased by 0.37%. Australia’s unemployment rate was 5.1% (previous 5.5%), the lowest since early February 2020. But China’s blue-chip index, the CSI 300, increased by 0.39%. Taiwan’s export orders, a leading indicator of demand for high-tech devices and exports in Asia, posted another rise, marking the 15th consecutive month of growth. Despite the COVID-19 splash, Taiwan’s economy remains strong. Investors are also waiting for the report from the Bank of Japan tomorrow.
Main market quotes:
- S&P 500 (F) 4,223.70 -22.89 (-0.54%)
- Dow Jones 34,033.67 -265.66 (-0.77%)
- DAX 15,710.57 -18.95 (-0.12%)
- FTSE 100 7,184.95 +12.47 (+0.17%)
- USD Index 91.33 +0.79 (+0.87%)
Important events:
- Canada BOC Governor Tiff Macklem Speaks at 01:30 (GMT+3);
- New Zealand GDP (q/q) at 01:45 (GMT+3);
- Australia RBA Governor Philip Lowe Speaks at 03:10 (GMT+3);
- Australia Employment Change (m/m) at 04:30 (GMT+3);
- Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
- SNB Interest Rate Decision at 10:30 (GMT+3);
- Eurozone Consumer Price Index (m/m, y/y) at 12:00 (GMT+3);
- US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
- US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
- Natural Gas Storage (w/w) at 17:30 (GMT+3).
