Stock Market Today
US and European futures are trading higher as traders are feeling a lot more comfortable because Fed Chairman, Jerome Powell again pushed back against speculation of more aggressive interest-rate hikes. The Chairman was endorsed by the Senate for his second term yesterday and this has also sent a message that the monetary policy in the US is likely to stay coherent with Fed’s current plan. Chairman of the Federal Reserve, Jerome Powell, said on Thursday that while bringing inflation under control may cost some economic hardship, it is still his top goal. Powell said he couldn’t guarantee the economy a “smooth landing” as the Fed hikes interest rates to slow price hikes that are approaching their highest pace in more than 40 years. With a robust labour market pushing up wages, he cautioned that averting the recession that normally accompanies forceful policy tightening will be difficult.
The S&P 500 and Dow both rallied off intraday lows on Wednesday, but still dropped 0.1 percent and 0.3 percent, respectively. The S&P 500 is already down more than 18% from its all-time high, and a 20% drop would put it in an outright bear market. The Nasdaq only managed a 0.1 percent increase on Wednesday, but the tech-heavy index is now in bear market territory, having fallen more than 29% from its all-time high.
Friday’s economic data includes an estimate of April import prices as well as an early look at May consumer sentiment. The import prices data will be released at 12:30 GMT and the forecast is for 0.6% as for the consumer sentiment number, it is going to be released at 14:00 GMT. The forecast for the price is 64.1 while the previous reading was at 65.2.
UK’s Cost Of Living
According to our projections, the UK’s increasing cost-of-living dilemma will add around £2370 ($2893) to typical family costs this year. With salaries lagging behind inflation and the government raising taxes, real disposable incomes are expected to decline by 3.4 percent. Can the public withstand the storm? To put it another way, not all of them.
Consumer confidence in the United Kingdom has plummeted, and there is little sign that people are delving into savings collected through previous lockdowns to keep spending going. We predict the economy to shrink in the second and fourth quarters, when the income pressure will be the most severe.
Even though a top European Union official cautioned that such a move may jeopardise their trade relationship, Boris Johnson is still contemplating whether to carry out the UK’s threat to throw away part of the Brexit accord. Tensions between the UK and the EU over post-Brexit arrangements in Northern Ireland have heightened the risk of a trade war, and discussions between Foreign Secretary Liz Truss and European Commission Vice-President Maros Sefcovic yesterday failed to find common ground once again. Johnson’s government has long claimed that the EU deal it struck harms Northern Ireland peace by stoking instability and harming UK trade.
Euro: While stronger price action at 1.05 developed this week, the danger of 1.00 remains through the second half of the year, according to present factors. Long-term euro-dollar support can be found near 1.0097, a 76.4% retracement of the 2000-08 rally to 1.5991 from 0.8272.
The benefits of chasing the euro lower towards parity may become questionable depending on the speed of the decline, but for the time being, it’s difficult to argue with the call. The euro last fell below 1.00 in 4Q02, and there have been repeated calls for a recurrence since then (e.g., the Greek debt crisis), with some feeling a sense of déjà vu. Euro parity is a genuine possibility until a sustainably positive trigger emerges, and this week’s more aggressive ECB indications don’t change that.
Sterling: By the end of trade on Wednesday, sterling had fallen to $1.2251, its lowest level since May 2020, when the pandemic’s earliest effects were still being felt. Because round numbers are so important in currency trading, the next psychological milestone will be $1.20. Since its all-time low in 1985, the pound has only fallen below this level at the depths of the Brexit political turmoil and the early days of the epidemic.
Those episodes revolved around extreme ambiguity regarding dangers that markets struggle to assess. This time, the confidence crisis is fueled by the main issue in foreign exchange markets: traders fear that rising inflation and slow economic development may make it unable to keep the pound supported any longer. Politicians and central bankers’ statements, like with the Bernard Ingham episode in 1985, will be crucial.