Equity futures in the United States and Europe are climbing as investors assess the implications of a worldwide wave of monetary tightening to combat rising inflation. This is a big week regarding monetary policies as we will hear from the Bank of England and the Federal Reserve, and of course, the US NFP data is also due on Friday. In addition to this, investors continue to monitor the ongoing conflict between Russia and Ukraine. In the coming days, the EU will issue more comprehensive guidelines on what firms may and cannot do under EU sanctions regulations to respond to Russia’s requests to pay for gas in Rubles. There have also been reports that Germany, the biggest economy in the Eurozone, may back an embargo against Russian oil. If that does occur, we could see significant volatility creeping into the markets. Speaking of volatility, the VIX index trades well above the $30 price mark, which suggests that traders are in no mood to back riskier assets.
The Reserve Bank of Australia boosted interest rates more than predicted, raising the primary rate by 25 basis points to 0.35 per cent, the first hike since 2010. It stated that additional increases are required. In terms of the transition from QE to QT, the RBA stated that it would not be purchasing new assets, but it will also not be selling down its portfolio. The Australian dollar rose, but equities sank.
In terms of the economic calendar, we have the UK’s Final Manufacturing PMI numbers coming out later in the morning. The expectations are 55.3, which is the same as the previous reading. There is one thing clear when it comes to this number: the consumers are fully stretched in their ability to stomach any further price increase, and businesses are certainly about their ability to absorb any additional price shock. The recent data has also suggested that economic output in the country has slowed quite remarkably.
On Wednesday, we also have the Fed’s monetary policy decision taking place at 18:00 GMT, and the expectations are that the Fed will increase the interest rate by 50 basis points. However, speculators believe that the Fed could also increase the interest rate by 75 basis points.
On Thursday, we have the Bank of England announcing its monetary policy decision, and it is widely anticipated that the bank will increase the interest rate by another 25 basis points. So, the final number will be 1.0% from its previous reading of 0.75%.
Oil prices continue to trade above the critical price level of $100 as traders keep a close eye on the EU, likely to ban Russian crude. The European Union is expected to announce its plans to tighten up sanctions on Russia further, and banning Russian oil is one. If the embargo is placed on Russian oil, we do oil prices to pick up more volatility. Traders are considering this embargo to take place as the German Finance Minister has also backed this idea which is quite a significant change in the country’s stance against Russia. However, the devil is always in details, which means if the embargo does apply, the most important factor to note will be when that embargo occurs. It is also highly anticipated that sanctions against Russian oil will not go into effect immediately. The likely scenario is that these potential sanctions may see the daylight in the next few months, or details may be left vague.
Traders will also be paying particular attention to inventory data from the United States, with the American Petroleum Institute industry group reporting stocks for the week ending April 29 on Tuesday, followed by official data from the Energy Information Administration on Wednesday.
The precious metal faced a heavy sell-off yesterday, and the price isn’t looking that promising today. Investors are keeping a close eye on the Fed monetary policy meeting this week. When it comes to the gold price, it is mainly about the strength of the dollar index, which has been increasing in price and negatively influencing the price of gold.