More and more Fed officials are tending to tighten monetary policy aggressively. New sanctions against Russia

Financial markets are now susceptible to verbal interventions by the US Federal Reserve officials. Yesterday, after Lael Brainard's speech, US indices fell sharply. Ms. Brainard is known for her dovish stance on monetary policy, but yesterday her tone changed to hawkish. "Inflation is very high and could go even higher, which would require permanent interest rate increases and balance sheet cuts," Brainard said on Tuesday. "To reduce inflation, the Fed will continue to methodically tighten monetary policy through a series of interest rate hikes and rapid balance sheet cuts immediately following our May meeting," the policymaker added.

After Brainard's speech, Treasury bond yields jumped sharply: 10-year bond yields have jumped 2.5% to near three-year highs in rising market sectors, including technology. As a result, the dollar index rose, and major indices fell.

At the end of the day yesterday, the Dow Jones Index (US30) decreased by 0.80%, the S&P 500 Index (US500) fell by 1.26%, and the NASDAQ Technology Index (US100) lost 2.26%.

Spirit Airlines reports receiving a $3.6 billion merger offer from JetBlue.

Today, investors' attention will be focused on the publication of the Fed's latest policy meeting minutes. At the next meeting of the US Federal Reserve in May, investors and analysts will be scrutinized it for clues for a 50 basis point hike. It is now believed that the Fed will choose this rate with an 80% probability.

The US is planning to put Sberbank on the sanctions list. Yesterday, the British Foreign Secretary said that the United Kingdom would call on the G7 countries to set a clear deadline for stopping Russian oil and gas imports.

Yesterday, European stock markets traded without a single trend amid new sanctions against Russia, which will also indirectly hit the European economy. Yesterday German DAX (DE30) decreased by 0.65%, French CAC 40 (FR40) lost 1.28%, Spanish IBEX 35 (ES35) gained 1.20%, British FTSE 100 (UK100) added 0.72%.

The EU imposes new sanctions against Russia over the situation in Bucha and the entire Kyiv region:
  • a coal embargo against Russia, which will cost Russia 4 billion euros a year;
  • exports of semiconductors, machinery and transport equipment worth 10 billion euro to Russia;
  • any transactions with four key Russian banks, including VTB;
  • Russian ships will be banned from entering EU ports;
  • Imports from the Russian Federation of a number of goods and raw materials such as lumber, seeds, seafood, and alcohol;
  • Russian companies will be banned from participating in European public procurement, and the Russian government agencies will be deprived of financial support from the EU.

Oil prices fell yesterday. Tighter monetary policy will put downward pressure on oil prices. This also applies to energy companies. The release of US and UK strategic oil reserves will also help lower oil prices. Analysts believe that it is time to withdraw energy companies from portfolios, despite the high deficit and even because of the possible full embargo on Russian oil.

Ukrainian President Vladimir Zelensky told the UN Security Council on Tuesday that Russia should be held accountable for accusations of military atrocities. Zelensky questioned the value of the 15-member Security Council, which failed to act on February 24 since Moscow, a permanent Security Council member, has a veto power along with the United States, France, Britain, and China. "We are dealing with a state that is turning its veto in the UN Security Council into the right to cause death," Zelensky said live from the Ukrainian capital of Kyiv, calling for action to reform the World Organization.

Satellite images taken in March and provided to Reuters by US company Maxar Technologies show the bodies of civilians on the street in Bucha that was occupied by Russian troops until about March 30, refuting the Kremlin's claims of staging scenes.

Asian markets traded in positive territory yesterday. Japan's Nikkei 225 (JP225) gained 0.19% yesterday, while Australia's S&P/ASX 200 (AU200) ended the day with +0.19%. There was a bank holiday in Hong Kong. Today's trading in Asian markets began to decline, following the US indices. Activity in China's service sector declined at the fastest pace in two years in March as a spike in coronavirus infections limited mobility and affected customer demand. On Tuesday, Chinese authorities extended the COVID-19 lockdown in Shanghai.

Main market quotes:

S&P 500 (F) (US500) 4,525.12 -57.52 (-1.26%)

Dow Jones (US30) 34,641.18 -280.70 (-0.80%)

DAX (DE40) 14,424.36 -93.80 (-0.65%)

FTSE 100 (UK100) 7,613.72 +54.80 (+0.72%)

USD Index +0.50 (+0.50%)

Important events for today:
  • – UK Construction PMI (m/m) at 11:30 (GMT+3);
  • – Eurozone Producer Price Index (m/m) at 12:00 (GMT+3);
  • – Canada Ivey PMI (m/m) at 17:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – US FOMC Meeting Minutes at 21:00 (GMT+3).

by Justforex, 2022.04.06

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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