Stock indices fall ahead of inflation data. WTO head warns of the food crisis

The US indices fell sharply yesterday ahead of inflation data. At the close of the US stock market, the Dow Jones Index (US30) fell by 1.94%, while the S&P 500 Index (US500) lost 2.38%. The NASDAQ Technology Index (US100) decreased by 2.75%. Analysts expect US inflation to add 0.7% for the month, but given yesterday's drop in the indices, the figure may be worse than expected, as investors tend to price in the worst-case scenarios. If, on the contrary, the Consumer Price Index falls and inflation starts to suppress, in this case, the Fed might postpone some of its future interest rate hikes or act less aggressively, and that would already be positive for stock indices.

European stock markets were mostly down yesterday. German DAX (DE30) decreased by 1.71%, French CAC 40 (FR 40) fell by 1.40%, Spanish IBEX 35 (ES35) lost 1.49%, British FTSE 100 (UK100) was down by 1.54%.

On Thursday, the European Central Bank reiterated its intention to raise interest rates at next month's policy meeting and lowered its growth forecasts. The ECB announced its intention to raise key interest rates by 25 basis points at its July meeting. The extent of further hikes will depend on the changing trajectory of the medium-term inflation outlook. The ECB also lowered its growth forecasts and revised its inflation forecasts upward. Annual inflation is now expected to reach 6.8% in 2022, 3.5% in 2023 and 2.1% in 2024. This is significantly higher than the March forecasts.

In a speech yesterday, ECB head Christine Lagarde pointed out that inflationary pressures have widened and intensified, and global energy prices will remain high in the near term due to Russia's invasion of Ukraine.

Former Fed Chairman Kroszner said yesterday that the ECB risks that inflation could take hold in the region, with inflation expectations becoming unsustainable, resulting in the ECB having to raise rates more aggressively. However, Kroszner expressed sympathy for the difficult situation the ECB is in, given Europe's proximity to the war in Ukraine, its interdependence with Russia, and, therefore, a state of economic danger.

The WTO head warns of a global food crisis. African countries could be hit particularly hard by wheat and fertilizer shortages, WTO director Ngozi Okonjo-Iweala told the BBC. Millions of tons of grain lie in warehouses and Ukrainian ports and cannot be exported because of the war. Ukraine is a major world wheat exporter, accounting for 9% of the world market. Ukraine also has 42% of the world market for sunflower oil and 16% for corn. Because of the impasse over Russia's blockade of Black Sea ports and coastal blockade, 20 to 25 million tons of wheat are stuck in Ukraine, while world grain prices are skyrocketing.

Asian stocks followed Wall Street on Friday. Japan's Nikkei 225 (JP225) decreased by 1.47% from the open, Hong Kong's Hang Seng (HK50) lost 0.18%, and Australia's S&P/ASX 200 (AU200) is trading down by 1.17%.

China's exports jumped amid the recovery of ports. Exports increased by 16.9% year-over-year in May, rebounding from a 3.9% year-over-year gain in April. Imports rose by 4.1% year-over-year in May, up from 0% the previous month. The increase in both exports and imports was mainly due to the opening of the port of Shanghai, China's largest port.

But yesterday, it was also reported that Shanghai and Beijing were back on new warnings about the coronavirus after parts of China's largest economic center imposed new lockdown restrictions and announced another round of mass testing for millions of residents. But none of the negative news had much impact on oil prices. On Wednesday, the price of Brent crude reached $124 a barrel, the highest level in 14 years. Analysts believe any decline in oil prices now will be limited by demand caused by the US summer season. Crude oil prices have risen every month since November as most of the world's economies began a strong recovery from the 2020 coronavirus outbreak. Russia's invasion of Ukraine began in February, and subsequent Western sanctions on a major energy exporter, Russia, have also severely cut most energy supplies, pushing prices to a multi-month or multi-year high.

Main market quotes:

S&P 500 (F) (US500) 4,017.82 −97.95 (−2.38%)

Dow Jones (US30) 32,272.79 −638.11 (−1.94%)

DAX (DE40) 14,198.80 −247.19 (−1.71%)

FTSE 100 (UK100) 7,476.21 −116.79 (−1.54%)

USD Index 103.34 +0.80 (+0.78%)

Important events for today:
  • – China Consumer Price Index (m/m) at 04:30 (GMT+3);
  • – China Producer Price Index (m/m) at 04:30 (GMT+3);
  • – Eurozone Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
  • – Canada Unemployment Rate (m/m) at 15:30 (GMT+3);
  • – US Consumer Price Index (m/m) at 15:30 (GMT+3);
  • – Eurozone ECB President Lagarde Speaks at 16:45 (GMT+3);
  • – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3).

by Justforex, 2022.06.10

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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