Daily Wrap Up 19 April 2022

19 Apr 2022 04:58 PM

World Bank downgrade boosts volatility

Stock markets have undergone a rebound today following the World Bank’s downgrade to global growth, the body now predicts the world economy will expand by 3.2% in 2022, while the previous forecast was 4.1%. The move from the World Bank comes amid rising inflation, concerns about energy and food supplies, and the war in Ukraine. Sentiment in US stocks is positive and that seems to have boosted the mood on this side of the Atlantic. As the Russian military campaign in Ukraine continues, traders watch from the side-lines as there is growing speculation that Western governments might impose extra sanctions on Russia due to reports that civilians are being deliberately targeted. As we near the end of the European session, the DAX and the FTSE 100 are fractionally lower. Over in the US, the S&P 500 is up 1.2%, and the NASDAQ 100 has rallied more than 1.6% - the technology heavy index rebounded from its sell-off yesterday.

Stocks have recovered from the World Bank’s downgrade, but oil is still suffering. WTI and Brent crude are down 3.9% and 3.7% respectively, due to concerns about demand levels. Should the global economy cool in the months ahead, that could dent demand for energy.

The US dollar index hit its highest mark in two years as there is growing speculation the Federal Reserve will look to ramp up the rate it is tightening its monetary policy. In recent weeks, there has been talk the Fed might look to lift rates by 50 basis points, now things have taken an even more hawkish turn as James Bullard didn’t rule out the possibility of a 75-basis point lift. It seems a bit extreme to move from a position of essentially 0% rates for two years, and then suddenly lift rates at an aggressive pace. US bond yields are moving higher at a fast rate, the 10-year yield hit 2.91% - highest since late 2018, which underlines the hawkish sentiment in the markets.

The Japanese yen is still under selling pressure as the currency has fallen to fresh multi-year lows versus several currencies, most notably it has dropped to a 20-year low against the US dollar. In the past last few months, we have seen several central banks hike rates, including the Bank of England, the Reserve Bank of New Zealand and the Fed, while the Bank of Japan are determined to maintain their ultra-loose policy, hence the excessive declines in the yen.

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