International Monetary Fund asks Fed to accelerate QE cuts

Last week on Friday, investors' attention was focused on US nonfarm payrolls data. The labor market statistics were disappointing. The US economy added only 210,000 jobs in November (against 533,000 expected), while the unemployment rate decreased from 4.6% to 4.2%. Also, last week, Fed Chairman Jerome Powell said that the central bank will probably discuss reducing its stimulus program more quickly at its meeting later this month. A lot will depend on US inflation data due, which will be published later this week. Analysts are predicting a rise in inflation to 6.7% in annual terms. The acceleration of inflation may strengthen expectations of a faster reduction of QE by the Fed. The US stock market fell again on Friday. By the close of the stock market, Dow Jones Index (US30) decreased by 0.17% (-4.14% for the week), S&P500 (US500) decreased by 0.84% (-2.27% for the week), and NASDAQ Technology Index (US100) lost 1.92% (-4.14% for the week) and became the fall leader among the major US indices. Stocks sold off due to the twin uncertainties over the Omicron strain and the prospect of a faster reduction in the Federal Reserve's stimulus program.

The International Monetary Fund warned Friday that it would likely lower its global economic growth estimates because of a new variant of the coronavirus. The number of countries reporting cases of Omicron continues to grow. However, scientists are still unsure whether it is more contagious than other variants, how serious the disease is, and what level of protection existing vaccines provide. The emergence of Omicron has already hit financial markets and undermined the global economic recovery.

Also, the International Monetary Fund has asked the Federal Reserve to tighten monetary policy with a faster pace because of rising inflation risks.

According to Bank of America's weekly report, falling equity markets, rising volatility, and the prospect of higher rates are classic signs of a market top. Volatility indicators also signal caution. Despite the volatility indicators in the US and Europe rebounding from the 2021 highs earlier last week, they remain well above average.

European stock indices also closed Friday in the red area. British FTSE 100 (UK100) decreased by 0.097% on Friday (+1.11% for the week), French CAC 40 (FR40) decreased by 0.44% (-0.32% for the week), German DAX (DE40) decreased by 0.61% (-1.13% for the week) and Spanish IBEX 35 (ES35) lost 0.71% and became the leader of the fall for the week with -2.56%. Germany will publish inflation data this week. As inflation in the region is rising, there are more and more calls for the ECB to tighten its monetary policy. However, the ECB has always been famous for its conservatism. That's why analysts are confident that it is not worth waiting for the ECB to change its policy before spring 2022 even if inflation in the region continues to rise. The UK will release October GDP data this week ahead of the Bank of England's December meeting. Recent UK economic data showed that the Bank of England may start to raise interest rates, but due to new uncertainty surrounding the Omicron strain, policymakers may decide to wait until early 2022 at the December meeting.

Oil prices increased more than $1 a barrel on Monday after Saudi Arabia, the largest exporter, raised the price of its crude oil sold to Asia and the United States, and because US and Iranian negotiations over a renewed nuclear deal appear to have stalled. The analyst expects oil prices to rise to $75 a barrel.

Asian markets traded in positive territory on Friday. Japan's Nikkei 225 (JP225) gained  1.00% (-1.44% for the week), Hong Kong's Hang Seng (HK50) increased by 0.093% (-0.60% for the week), and Australia's S&P/ASX 200 (AU200) added 0.22% (+0.37% for the week). The Japanese yen continues to strengthen as a safe haven currency as uncertainty in the markets is still high due to the spread of the Omicron option, which has led to renewed restrictions in various countries and increased fears over possible stronger action from the Federal Reserve to curb inflation.

In the commodities market, lumber futures (+18%), cocoa (+2.92%), WTI crude (+2.58%), and Brent crude (+2.39%) showed the biggest gains by the end of the week. Futures on natural gas (-6.92%), sugar (-2.89%), and orange juice (-2.22%) showed the biggest drop.

Main market quotes:

S&P 500 (F) (US500) 4,538.43 −38.67 (−0.84%)

Dow Jones (US30) 34,580.08 −59.71 (−0.17%)

DAX (DE40) 15,169.98 −93.13 (−0.61%)

FTSE 100 (UK100) 7,122.32 −6.89 (−0.097%)

USD Index 96.15 +0.01 (+0.01%)

Important events for today:
  • – UK Construction PMI (m/m) at 11:30 (GMT+2).

by Justforex, 2021.12.06

We advise you to get acquainted with the daily forecasts for the major currency pairs.

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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