The Centralists’ War… A Currency at a Top of 20 Years and Another at the Bottom of a Quarter Century By Investing.com


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Investing.com – U.S. inflation hits 8.6% and sets the stage for another aggressive rate hike by the Federal Reserve, while the market is pricing in eight rate hikes through the end of the year, adding 2% to the Fed’s current 1.0% interest rate.

On the other hand, the European Central sends a clear message about adopting an approach to fighting inflation through gradual tightening starting from July, while the market is pricing in the ECB raising deposits by 1.5% until the end of the year, bringing the interest rate to 1%.

wide overview

Wall Street managed to achieve its first weekly rise this month, after it suffered sharp losses last week that pushed stock indices to the bear market stage.

It climbed with a weekly gain of 5.4%, the S&P 500 gained 6.5% over the week, and the Nasdaq added a weekly gain of 7.5%.

In European markets, the European index rose with weekly gains of 2.4%, the British FTSE 100 (LON:) rose 2.7%, the German increased 1.6% and the French rose 3.2%.

currency movement

In terms of foreign currencies, the dollar maintained its lead and approached the 104 points barrier last week after the release of inflation data.

The divergence of future trends between the Federal Reserve and the Bank of Japan continued to affect the yen, as it pushed the Japanese currency to its lowest levels in nearly a quarter of a century at 134.55 levels.

The dollar reached its highest level in 20 years, while it fell against the dollar and traded near the 0.9900 level.

Although the ECB was clear in explaining its tightening framework and future guidance, it fell short of market expectations that a 50bps rate hike could be expected, adding to pressure on it and pushing it down below the 1.06 mark.

goods

The benchmark recorded a rise of 2.8%, or the equivalent of $3.07, to reach $113.12 a barrel when settling at the end of Friday’s trading, but it stabilized in the total of transactions this week.

The price of US NYMEX crude increased by 3.2%, or $3.35, to record $107.62 a barrel at the end of trading on Friday, but it recorded a weekly loss of 0.3%.

No US inventory data was released last week, as the Energy Information Administration’s report was delayed after a power outage damaged some of its equipment.

By the end of the week’s trading, it rose by 50 cents to reach $1,830.30 an ounce, but it declined by 0.6% during last week’s trading.

Standard inflation

The closely watched US inflation data early Friday revealed increased price pressures, and on a yearly basis, the US index came in at 8.6% vs. its previous 8.3%.

The rate, which excludes food and energy prices, came to 6%, beating expectations by 0.1%, and S&P 500 futures fell more than 1%.

After data showed prices rose 8.6% last month, exacerbating fears that the Federal Reserve’s efforts to control inflation will push the economy into recession.

The two-year rate rose, while the yields for longer maturities were unchanged, and the flattening of the yield curve indicates the tendency of expectations for the central bank to tighten its policies at a faster pace.

Inflation remains at its highest level in 40 years even after the Federal Reserve began cutting monetary support for the economy last March.

8 increments

The central bank indicated that it is likely to raise interest rates by 50 basis points at its meeting scheduled to be held next week, and perhaps 75 points.

The market is still pricing in 8 interest rate hikes of 25 basis points each until the end of this year, with the possibility of raising the interest rate by 50 basis points by 100% in the next three meetings.

The recent inflation data seems to support the prevailing market statement that the Fed will need to continue to tighten its inflation containment policy.

European Central

The European Central Bank’s June policy statement was unusually clear in outlining its near-term intentions and new expectations.

He stated that the Governing Council intends to raise the main interest rates of the European Central Bank by 25 basis points at the monetary policy meeting for the month of July.

However, for the time being, as was generally expected, the ECB did not change the key interest rates and the deposit rate remained unchanged at -0.50%.

The European Central Bank expects to raise the ECB’s key interest rates again in September… so if medium-term inflation expectations remain at the same levels or deteriorate, it would be appropriate to raise them at a higher pace at the September meeting.

This suggests that unless inflation expectations improve between now and September, there is very little potential for a 50bp hike in that time.

Markets are currently setting the possibility for the European Central Bank to raise the interest rate by 25 basis points by 100% in next July and September to reach 1.5% from now until the end of the year, bringing the interest rate to 1.00%.

no confidence

British Prime Minister Boris Johnson survived a no-confidence vote, with 211 Conservative Party members voting for him and 148 against him.

The rebellion was even bigger than that of his predecessor, Theresa May, who was ousted as prime minister after just six months in office after failing to unite the party on the UK’s divorce issue.

Australia

The Reserve Bank of Australia raised the cash rate by 50 basis points to 0.85%, while markets were expecting a rise of only 25 basis points.

It recorded its highest level, reaching 0.7245 after the issuance of this decision, before falling back to the level of 0.7100 on the back of the strength of the US dollar.

The Australian share market fell 1.5% on the back of the central bank raising interest rates at a higher rate than expected.

pessimistic look

Societe Generale said the S&P 500 could fall another 24% by the end of this year, when we are guided by the history of financial markets over the past 150 years.

Societe Generale notes that the benchmark may need to fall by as much as 40% from its January peak over the next six months to reach its bottom, which it estimated at 2,900 points.

As for the upper limit in the index’s movement, according to the bank, it is to fall by approximately 34% from its highest point to 3150 points.

Societe Generale arrived at this range (2900–3150 points) by studying post-crisis market values ​​beginning in the 1870s, using quantitative analysis, compared to other factors such as earnings expectations and valuations.

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