Inflation fears persist, Wall Street rebounds
Stock markets are still being driven by fears the Federal Reserve will lift interest rates several times this year, but there is division with regards to how many hikes will be introduced. Last night, US equity markets saw large declines, as the jump in US CPI to 7.5% led to worries the Fed might tighten monetary policy at a fast rate. Yesterday, James Bullard, a Fed member, announced he wants to see rates increased by 1% by July, and that dictated the mood on Wall Street. Mr Bullard speaks for himself but not the entire Fed. Other policy makers such as Mary Daly and Tom Barkin are less hawkish in their outlooks, which is why fears are cooling today. That being said, a more moderate approach to tightening could still see three rate increases in 2022.
The Dow Jones and the S&P 500 are showing small gains as bargain hunters have stepped into the fold, while the NASDAQ 100 is the underperformer of the bunch, and it is fractionally lower. On account of its large exposure to technology stocks, the NADSAQ is the most sensitive to the speculation there will be numerous interest rate hikes this year. Stock markets in Europe are in the red as the sell off in the US last night is still being felt in this part of the world. A rally in Shell and BP are ensuring the FTSE 100 hasn’t fallen further. Copper has retreated from its three-month yesterday, and that is weighing on Glencore and BHP Group.
The US dollar experienced not one, but two U-turns in the past 24 hours, and it was all because there were mixed views in relation to how many rate hikes the Fed might announce in 2022. This afternoon, the dollar index is in the red, but it is comfortably above the lows of yesterday. Even though the dollar is down, EUR/USD is lower too. Once again, sterling is performing well versus the dollar, the euro, and the Swiss franc.
USD/CAD is down 0.3% as the rally in oil is pushing up the Canadian dollar. The International Energy Agency said that oil supply levels are tight. Oil-rich nations like Saudi Arabia are not in any hurry to ramp up output in the near-term. Gold is essentially flat on the session as the metal is being influenced by the slide in the dollar. Copper, which is much more of an industrial metal is down over 3% and that reflects the broader sentiment in minerals.