Amid record inflation in Europe, investors expect ECB to tighten policy

In April, private-sector job growth was surprisingly positive, but fourth-quarter GDP was revised down unexpectedly by a tenth of a percentage point. Investors also continue to monitor the US debt market. Yield spreads on 10- and 2-year Treasury bonds continue to show inversion, raising serious concerns about an impending recession. The Federal Reserve may be tightening policy too aggressively in the near term, and analyst houses are already predicting the next three 0.5% interest rate hikes.

"Given the state of the economy, inflation at its highest level in 40 years, and an unemployment rate close to a record low, it is appropriate to move quickly to neutral policy," Kansas City Fed President Esther George said on Wednesday. Thomas Barkin, Head of the Federal Reserve Bank of Richmond, said he was ready to raise rates by half a point at the next meeting.

US indices decreased yesterday. The Dow Jones (US30) lost 0.19%, the S&P 500 (US500) fell by 0.63%, and the NASDAQ technology index (US100) decreased by 1.21%.

On Wednesday, European stock markets were mostly down, losing some of the gains of the previous session amid skepticism about the likely success of the latest peace talks between Ukraine and Russia. German DAX (DE30) decreased by 1.45% yesterday, French CAC 40 (FR40) lost 0.74%, Spanish IBEX 35 (ES35) decreased by 0.74%, and only British FTSE 100 (UK100) added 0.55%. Inflation in Germany increased in March to its highest level in more than 40 years due to higher prices for natural gas and oil products. The annual consumer price index was 7.3% compared to 5.1% in February. Such a jump in inflation in the EU countries may force the ECB to reconsider its monetary policy towards tightening. Now in Europe, there is a sale of European short-term bonds. This means that investors are already betting that higher-than-expected inflation will force the European Central Bank to raise interest rates. But despite rising inflation, Germany is preparing to cut Russian gas supplies by activating the first phase of its national contingency plan. The composite index of business and consumer confidence in the Eurozone fell to 108.5 from 113.9 in March, according to the European Commission.

The weekly drop-in crude oil inventories were accompanied by the release of almost the same amount of oil from the US Strategic Oil Reserves. The United States and its allies plan to impose new sanctions on more sectors of the Russian economy, including military supply chains. The OPEC+ countries will meet today. According to several sources, major oil producers are likely to stick to their planned target of increasing production by about 432,000 bpd.

Asian markets traded without a single trade yesterday. Japan's Nikkei 225 (JP225) decreased by 0.80%, Hong Kong's Hang Seng (HK50) added 1.39%, and Australia's S&P/ASX 200 (AU200) increased by 0.67%. China's manufacturing PMI fell to 49.5 points in March from 50.2 points the previous month, according to the State Bureau of Statistics (SBS). A PMI value above 50 points indicates an increase in activity in the sector, while a lower value indicates a weakening of activity. In Australia, building permits increased by 43.5% month-over-month, while private sector lending increased by 0.6% month-over-month in February.

Analysts say global stock indices are bracing for the worst quarter in 2 years as Russia's invasion of Ukraine puts upward pressure on commodity prices, forcing the global central banks to revise their monetary policy.

Main market quotes:

S&P 500 (F) (US500) 4,602.45 -29.15 (-0.63%)

Dow Jones (US30) 35,228.81 -65.38 (-0.19%)

DAX (DE40) 14,606.05 -214.28 (-1.45%)

FTSE 100 (UK100) 7,578.75 +41.50 (+0.55%)

USD Index 97.83 -0.58 (-0.59%)

• – Japan Industrial Production (m/m) at 02:50 (GMT+3);
• – China Manufacturing PMI (m/m) at 04:30 (GMT+3);
• – China Non-Manufacturing PMI (m/m) at 04:30 (GMT+3);
• – UK GDP (q/q) at 09:00 (GMT+3);
• – German Retail Sales at 09:00 (GMT+3);
• – German Unemployment Rate (m/m) at 10:55 (GMT+3);
• – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
• – OPEC+ Meeting at 13:00 (GMT+3);
• – Canada GDP (m/m) at 15:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – US Core PCE Price Index (m/m) at 15:30 (GMT+3);
• – US FOMC Member Williams Speech at 16:00 (GMT+3);
• – US Chicago PMI (m/m) at 16:45 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

by JMarkets, 2022.03.31

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.