Stock Market Today
Futures in the United States and Europe are trading higher today as we approach the end of a highly volatile month and as we await monetary policy statements to be released by the Bank of England (BOE) and the European Central Bank (ECB) later this week. According to Goldman Sachs, the BOE is expected to raise its interest rates three times in 2022 to make it clear to markets that it is actively working towards keeping inflation in check. On the other hand, the ECB is expected to stick to its dovish monetary policy, attempting to protect markets from global market fluctuations, and it is unlikely to raise interest rates before the second half of 2023. In addition to the crucial monetary policy statements, investors will also be digesting earnings reports to be released by big technology companies such as Meta Platforms and Alphabet.
The major stock market indices fell significantly in the first month of 2022 as investors reassessed the outlook of stock markets, weighing in risks from rising consumer prices, supply chain bottlenecks, and imminent interest rate hikes to be carried out by the American central bank. As a result, the S&P 500 is down 7% this month, while the Dow Jones Industrial Average is down 4.4%. Similarly, the Nasdaq, the tech-savvy index, dipped a whopping 12%.
The volatility we witnessed in stock markets last week was because of the Fed’s indication that it is likely to raise interest rates aggressively in coming months to curb inflation from rising any further. We now expect the Fed to raise interest rates by a quarter-percentage point five times this year. As a result, stock markets are likely to remain volatile in the short term as investors get accustomed to the transition in the Fed’s stance and the American economy proves that it can sustain itself without additional support from authorities. On the other hand, the American economy continues to be supported by strong fundamentals as it is likely to expand in 2022 and corporate earnings continue to outperform expectations.
Today, investors will be digesting the Chicago Purchasing Managers’ Index, which will help them understand how the American economy is likely to grow in the coming months, as purchasing managers usually have the most up-to-date information regarding any potential change in upcoming demand so that they can respond accordingly and avoid any supply gaps. Moreover, investors should also be closely watching Esther George, President of the Federal Reserve Bank of Kansas City’s, comments on the Fed’s monetary policy and the future outlook of the American economy.
Following the recent slump in crypto markets, Bitcoin, the global benchmark of cryptocurrencies, has failed to recover ground and move above the crucial $40,000 level. The notorious digital coin is currently trading at around $37,000. However, with mainstream adoption of cryptocurrencies on the rise, by institutional investors and individuals alike, and backed by strong fundamentals, the future outlook of cryptocurrencies remains positive.
In an unexpected turn of events, Wendy Rogers, State Senator of Arizona, is attempting to get a bill passed that would make Bitcoin a legal currency in the state. The likelihood of the bill being passed is extremely low, and even if it is approved, it will most likely be merely symbolic, with little impact on its practical application. This is because there would be no obligation for Arizonian citizens to accept it as payment, and it would also have no effect on Bitcoin’s tax status.
Crude oil prices have risen in recent weeks, fuelled by predictions that global demand will likely outstrip supply in 2022. Furthermore, rising crude oil prices have been helped by geopolitical tensions between the West and Russia over Ukraine. Moreover, the conflict between Yemen’s Houthis and the United Arab Emirates may have a short-term negative impact on oil supply. As a result, Brent, the international crude oil benchmark, surpassed $90 per barrel last week, but then fell back as investors began to book profits. Investors are looking forward to the OPEC+ meeting this week. However, the cartel is likely to stick to its current strategy of gradually raising oil production.
The price of gold fell following last week’s Fed meeting, as the American central bank reiterated its intention to raise interest rates this year. As a result, gold is now trading below $1,800 and has fallen below its 100-day and 200-day moving averages. This is because a surge in interest rates raises the opportunity cost of holding the precious metal, making it less appealing to investors. Nonetheless, gold’s appeal as a safe haven commodity and a hedge against rising consumer prices and volatility is likely to sustain it in the future.
The dollar rose in value last week following the Fed’s meeting, as investors began to price in more aggressive interest rate hikes by the American central bank. The value of the US dollar increased because when a country’s interest rates rise, so does global demand for its legal tender as investors capitalise on higher risk-free rates. Investors should also keep in mind that the pound and euro are likely to be affected by monetary policy statements issued by the ECB and BOE later this week.
Asian Pacific Markets
According to recent reports, China’s economy is slowing as a result of the country’s stringent regulations aimed at preventing the spread of coronavirus cases. Consumer spending is falling across the country as a result of these restrictions. This is reflected in China’s manufacturing Purchasing Managers’ Index, which fell to 50.1, just above the 50-point threshold separating expansion from contraction. In order to support the economy, Beijing has communicated that it is lowering interest rates and increasing fiscal support.