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Despite the Federal Reserve announcing an increase in interest rates by 75 bp, which represents the biggest increase since 1994, dollar markets were fairly calm and the greenback even moderately depreciated against other major currencies as seen in the performance of the USDX.
Crypto markets made overall a moderate recovery with Ethereum trading at its peak around $1,250 after defending the $1,000-level and Bitcoin coming closer to the $23k mark after also briefly trading not far above $20k. These market moves contributed to the recovery of the total crypto market cap towards the one trillion dollar threshold. Among the top 20 non-stablecoin cryptos there appears to be not a single coin now trading in the green over a rolling seven days period with many cryptos like Bitcoin and Ethereum losing more than twenty per cent of their value over that period. Margin calls even among crypto funds with holdings in the millions of dollars and the halt of withdrawal at Celsius, one of the most popular platforms for crypto loans and staking might have exacerbated the situation over the past days.
Equity markets in the U.S. and Europe traded clearly bullish on Wednesday, though by Thursday morning the positive sentiment waned and in many markets like the Germany 40 and US 30 practically all gains from the Wednesday session were undone.
On Thursday in the U.S. data on housing starts and permits in May as well as the weekly new jobless claims numbers can be expected.
While the sudden announcement in the morning hours that the European Central Bank (ECB) would hold an unscheduled meeting that day initially strengthened the euro with the EUR/USD rate moving again closer to the 1.06-mark, traders might have been disappointed by the actually released statement following the meeting of the Governing Council (GC). The GC merely indicated that it would act against “fragmentation risks” citing the pandemic as a reason for “vulnerabilities” which “contribute to the uneven transmission of the normalisation” of its monetary policy. Plainly speaking the ECB must be worried about the rapidly rising spreads between the rates among some of its biggest economies. Only briefly this statement might have brought respite for some of the more pressured markets with the focus mostly on Italy which among eurozone countries has the highest level of debt-to-GDP after Greece.
On Thursday morning monthly consumer price index (CPI) statistics will be published in Italy with analysts expecting that the level of inflation will remain high around the 6.9% y/y growth seen in the previous release.
The pound sterling traded fairly mixed against other major currencies. While it appreciated against the weakened dollar and also against the Japanese yen (JPY) at the end of the day the currency was trading lower against the Australian dollar and the euro.
It is widely expected that the Bank of England (BoE) will decide to hike rates once again gradually by 25 bp. The BoE was one of the first major Western central banks to start tightening its monetary policy and this would be the fifth rate hike in a row. A Bloomberg report states that analysts believe that three of the nine Monetary Policy Board members could vote for a 50 bp hike.
Oil prices settled for the second day in a row lower with the weekly inventory numbers released by the Energy Information Administration (EIA) not significantly affecting the overall trend. This data from the EIA was indicating overall the trends seen in the American Petroleum Institute (API) data release from Tuesday as crude oil inventories posted a moderate build, while gasoline stocks were once again lower.
Key outtakes from the IEA Oil Market Report for June 2022 said that the world oil demand would continue growing at a rate of 1.8 million barrels per day (mb/d) in 2022 and then by 2.2 mb/d in 2023, while non-OPEC+ members are set to be driving the increase in global supplies amounting to an addition of 1.9 mb/d in 2022.
Major U.S. stock market indices traded with a significant upside on Wednesday despite the FOMC making the biggest rate hike since 1994, raising rates by 75 basis points. This action by the central banking organisation was widely anticipated and thus was no reason for surprise. The Federal Reserve Bank’s economic projections when making this decision showed that the central tendency among its members is for the PCE inflation rate to reduce in the coming years with a range between 2.0-2.5 possible in 2024. Though at the same time the expectations on real GDP growth and unemployment rate were slightly revised for the worse with the real GDP growth this year expected to amount only to 1.5%-1.9% compared to the 2.5%-3.0% projected in March, while the unemployment rate expectations were raised by 20 bp to 3.6%-3.8%.
Federal Reserve Board members expect rates to remain in the 2.0%-3.0% range in the longer run and the majority do not expect rates to rise above 4% in the coming years.
In this sentiment Boeing (+9.60%) was with a wide margin the best-performing S&P 500 component on Wednesday. Reuters reported that the company announced progress in its 737 MAX 10 aircraft program, though did not offer further details on the suggested time-line when the aircraft could be approved to enter service. The release came just after Airbus made its maiden flight of its A321 XLR. While the seating capacity of Boeing’s MAX 10 in a 2-class configuration will reach with 208 seats almost the level of Airbus’ aircraft with 220 seats, Airbus has a clear edge in terms of range announcing this narrow-body aircraft could make trips up to 4,700 nm or 11 hours of flight time, while the MAX 10 will reach only 3,300 nm and thus the smallest range among the 737 MAX family.
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