Investors are betting on falling stock indices. The ECB rejects the soft monetary policy

Major US indices continued to fall yesterday as investors continue to fear that a rate hike by the Federal Reserve to fight rapid inflation will lead to a recession in the economy.

The US stock market saw another sell-off yesterday. At the close of the stock market, the Dow Jones Index (US30) decreased by 0.75%, the S&P 500 Index (US500) lost 0.58%, and the NASDAQ Technology Index (US100) fell by 0.26%.

The options exchange saw a huge investment ($20,000,000 Buy PUT options) with a strike price of 374 on the SPY with a June expiration. This means that investor expects to see the SPY price drop to 374 (~ 3740 for the US500) or lower by June 17, 2022. This is not the first such position with the aim of reducing.

Major European indices closed in the red zone yesterday. Germany's DAX (DE30) decreased by 0.93%, France's CAC 40 (FR40) lost 1.26%, Spain's IBEX 35 (ES35) fell by 0.83%, and the British FTSE 100 (UK100) decreased by 1.82%. The minutes of the European Central Bank's April monetary policy meeting showed that inflation concerns prompted dovish central bank officials to support a 0.25-point rate hike as early as July. Another part of the representatives favors an immediate 0.5% hike. At the same time, net asset purchases will cease in late June.

On Thursday, oil prices returned to the green zone after a two-day decline amid reports that US President Joe Biden may still meet with Saudi Arabia's Crown Prince, who could allegedly force key oil producers to consider a US request for a supply increase. Oil prices are also rising as a planned easing of Covid restrictions in Shanghai could boost fuel demand in China, the world's largest oil importer.

Asian markets closed lower yesterday. Japan's Nikkei 225 (JP225) decreased by 1.89%, Hong Kong's Hang Seng (HK50) fell by 2.54% and Australia's S&P/ASX 200 (AU200) was down by 1.65%.

China's central bank cut its key interest rate on long-term loans to reduce the cost of mortgages. According to a statement from the People's Bank of China on Friday, the benchmark rate for five-year loans and residential mortgages was cut to 4.45% from 4.6%, the lowest rate since the 2019 rate revision. Lower loan rates will help reduce the cost of credit for businesses and consumers as well as increase demand for credit and support economic activity. The actual benchmark lending rate remained unchanged at 3.7%.

Core consumer inflation in Japan reached the central bank's target of 2% (2.1% year on year) in April, reaching a seven-year high as rising energy and commodity prices cause wider price increases. Rising prices are exacerbating public concerns about the high cost of living. The Bank of Japan must now respond by pursuing a soft monetary policy to raise the inflation rate.

According to the Ministry of Finance, New Zealand will not avoid a recession next year, as rising interest rates and falling home prices will affect demand. Budget projections show that GDP will grow by only 0.1% in the second, third, and fourth quarters of 2023. The RBNZ meeting will take place next week, and many economists predict another 0.5% interest rate hike, increasing it to 2%. Investors expect the rate to exceed 3% by the end of the year.

Main market quotes:

S&P 500 (F) (US500) 3,900.79 -22.89 (-0.58%)

Dow Jones (US30) 31,253.13 -236.94 (-0.75%)

DAX (DE40) 13,882.30 -125.46 (-0.90%)

FTSE 100 (UK100) 7,302.74 -135.35 (-1.82%)

USD Index 102.88 -0.93 (-0.89%)

Important events for today:
  • – Japan National Core Consumer Price Index at 02:30 (GMT+3);
  • – China PBoC Loan Prime Rate (m/m) at 04:15 (GMT+3);
  • – UK Retail Sales (m/m) at 09:00 (GMT+3).

by Justforex, 2022.05.20

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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