Fed chief Jerome Powell indicated in his speech to the US Senate that the US central bank could fully reduce large-scale bond purchases in two weeks, referring to a strong economy. This will be a necessary first step toward raising rates next year to prevent inflationary problems by the end of 2022. The chairman of the US Federal Reserve said that the economy was likely to pass the target the Fed has set for raising interest rates on inflation in the coming months. On the other hand, it will still need complete employment before it starts the rise. Mr. Powell also pointed out that inflation in the United States could no longer be called “temporary”.
Powell’s statement was received negatively by traders, leading to a sharp strengthening of the dollar index and a decline in major stock indices worldwide. By the end of the trading session on Tuesday, Dow Jones Industrial Average (US30) decreased by 1.86% (-3.98% for the month), S&P 500 (US500) lost 1.90% (-1.01% for the month), and the tech index Nasdaq (US100) decreased by 1.55% (-0.37% for the month).
The US consumer sentiment index continued its decline in November, falling 4.3 points to 109.5, according to the Conference Board. This is the third consecutive decline.
Ray Dalio, a famous hedge-fund manager, said that there was no need to “go to the cash” right now despite the heightened market volatility due to a new strain of the virus. Dalio said that cash would burn because of high inflation, and reliable and balanced portfolios would save investors. At the same time, the billionaire is worried about a lot of liquidity in the economy: “It won’t raise living standards in an important way. As inflation then begins to bite, it has political consequences”.
European stock indices also closed in the red area yesterday. French index CAC 40 (FR40) decreased by 0.81% (-2.5% for the month), British FTSE 100 (UK100) decreased by 0.44% (-3.14% for the month), German DAX (DE40) lost 1.18% (-4.47% for the month), Spanish IBEX (ES35) lost 1.78% (-9.56% for the month). Eurozone annual inflation accelerated to 4.9% in November from 4.1%; it’s well above the 4.5% forecast and above the ECB’s target. Pressure is now building on the ECB on future monetary stimulus, as the ECB initially did not plan to cut the PEPP program until spring 2022.
Rating agency MOODY pointed out that the emergence of the Omicron strain creates new risks to global economic growth and inflation expectations. MERCK expects the Covid-19 drug to be effective against the Omicron strain.
The White House is disappointed that oil prices fell, but gasoline prices remained at the same level. Yesterday, WTI crude oil fell below $65 a barrel for the first time since August, and the Vix oil volatility index reached 2008 levels. Oil prices increased more than 3% this morning ahead of an OPEC+ meeting, where major producers will discuss how to respond to the threat of falling fuel demand due to the Omicron strain. Algeria’s Energy Minister said yesterday that OPEC+ would deliver enough oil to the world market and take all necessary measures to maintain market balance amid fears of a new strain.
Asian markets, on the other hand, are showing a recovery today. Japan’s Nikkei index (JP225) increased by 0.41% (-6.16% for the month), Hong Kong’s Hang Seng (HK50) added 0.75% (-6.68% for the month), Australia’s ASX 200 (AU200) decreased by 0.28% (-1.21% for the month).
Evergrande’s price fell by 4.8% yesterday after Chairman Hui Ka Yan had sold part of his stake in the company, raising about $344 million. He sold 1.2 billion shares on Friday, reducing his stake from 77% to 67.9% to solve the problem of more than $300 billion debt.
Main market quotes:
- S&P 500 (F) (US500) 4,567.00 −88.27 (−1.90%)
- Dow Jones (US30) 34,483.72 −652.22 (−1.86%)
- DAX (DE40) 15,100.13 −180.73 (−1.18%)
- FTSE 100 (UK100) 7,059.45 −50.50 (−0.71%)
- USD Index 96.27 +0.18 (+0.19%)
Important events for today:
- Australia GDP (q/q) at 02:30 (GMT+2);
- Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
- German Retail Sales (m/m) at 09:00 (GMT+2);
- German Manufacturing PMI (m/m) at 10:55 (GMT+2);
- Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+2);
- UK Manufacturing PMI (m/m) at 11:30 (GMT+2);
- US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+2);
- Canada Building Permits (m/m) at 15:30 (GMT+2);
- UK BoE Gov Bailey’s Speech at 16:00 (GMT+2);
- US ISM Manufacturing PMI (m/m) at 17:00 (GMT+2);
- US Fed Chair Powell Testifies at 17:00 (GMT+2);
- US Treasury Secretary Yellen Speaks at 17:00 (GMT+2);
- US Crude Oil Reserves (w/w) at 17:30 (GMT+2).