Aggressive monetary policies by the US Federal Reserve and other global central banks could affect economic growth

The Federal Reserve will raise interest rates non-stop and even slow the US economy if necessary to reduce inflation from its current 40-year highs. Record high fuel prices accelerate inflation and could eventually lead to lower energy demand as consumers find it increasingly difficult to pay those prices. US economic growth this year is likely to be 2.4%, about 0.8% below the Fed's estimate, as the war in Ukraine causes more global negative shocks than expected, S&P Global said in its forecast.

Major US retailers point out that people are cutting back on buying larger items because people simply don't have enough money. These are signs that high inflation is seeping into the economy.

The US stock market saw another sell-off yesterday. At the close of the stock market yesterday, the Dow Jones index (US30) decreased by 3.57%, and the S&P 500 index (US500) lost 4.04% (the most significant drop in 2 years). The NASDAQ Technology Index (US100) fell by 4.73%.

Treasury Secretary Janet Yellen said the dollar had strengthened on higher interest rates in the US and that the rise had raised concerns in some other countries. For many emerging and developing countries, it has become more expensive to service dollar-denominated debt.

Major European indices closed in the red zone yesterday. Investors are concerned about fears of widespread inflation and a potential global economic slowdown. Germany's DAX (DE30) fell by 1.26%, France's CAC 40 (FR40) decreased by 1.20%, Spain's IBEX 35 (ES35) closed at its opening level, and Britain's FTSE 100 (UK100) lost 1.07%. The annual inflation rate in the Eurozone fell from 7.5% to 7.4%. These are signs of a slowdown in inflation. The ECB will release its April monetary policy meeting minutes today, where traders will be looking for clues to a potential tightening of monetary policy.

The head of the Swiss Central Bank has indicated that if inflation rises, the bank will act decisively. Switzerland is holding the lowest rate in the world at -0.75%.

Crude oil inventories unexpectedly fell last week by 3.4 million barrels. But that didn't affect oil prices. Oil fell by 2% yesterday as the United States may ease some restrictions on the Venezuelan government, giving hope that the market may see additional supply. Japan will release 4.7 million barrels of crude oil from national reserves in June.

The European Parliament threatened sanctions against former German Chancellor Gerhard Schröder, who serves as chairman of the supervisory board of Russian state oil giant Rosneft. The European Parliament demands that the former chancellor resigns from his posts in Russian companies.

Asian markets closed in green territory yesterday. Japan's Nikkei 225 (JP225) gained 0.94%, Hong Kong's Hang Seng (HK50) added 0.20%, and Australia's S&P/ASX 200 (AU200) was up +0.99%.

More than 60% of Japanese companies want the central bank to end its massive monetary policy easing policy this fiscal year because of yen weakness, with about a quarter urging it to take action now. A rapid slide in the yen to a two-decade low has jacked up prices of fuel and raw materials imports, lifting not only corporate costs but also hitting household spending. The Bank of Japan is not going to change its monetary policy yet, but it should be noted that Japan's inflation rate is close to the 2% target. Now Kuroda wants to see inflation be sustainable.

Main market quotes:

S&P 500 (F) (US500) 3,923.68 -165.17 (-4.04%)

Dow Jones (US30) 31,490.07 -1,164.52 (-3.57%)

DAX (DE40) 14,007.76 -178.18 (-1.26%)

FTSE 100 (UK100) 7,438.09 -80.26 (-1.07%)

USD Index 103.92 +0.56 (+0.54%)

Important events for today:
  • – Australia Unemployment Rate (m/m) at 04:30 (GMT+3);
  • – New Zealand Annual Budget Release at 05:00 (GMT+3);
  • – Eurozone ECB Monetary Policy Meeting Accounts at 14:30 (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);
  • – US Existing Home Sales (m/m) at 17:00 (GMT+3);
  • – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

by Justforex, 2022.05.19

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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