US and European futures are trading sharply lower and it seems like traders are ready to draw some more blood out of the current rally. Last week, we experienced an intense sell-off for the US and European markets and today we see traders over in Europe picking up the momentum from Wall Street. The entire sell off is mainly due to the taper tantrum which is triggered by the Fed’s comment on their monetary policy.
The Federal Reserve Chair, Jerome Powell, surprised traders with a hawkish stance on Wednesday, causing Wall Street to have its worst week in nearly four months. Policymakers’ comments suggested that the Federal Reserve was likely concerned about rising inflationary pressures.
Remember that investors understood the Federal Reserve’s comments last week because the central bank sees rising inflation as a concern and will most likely take steps to control it in the coming months. The meeting demonstrated that the Fed was not solely concerned with supporting the country’s battered labour market.
Policymakers now expect interest rates to rise from record lows in 2023, rather than 2024, as was previously predicted. The St. Louis Fed’s president, James Bullard, has warned investors that the first rate hike could occur as early as next year.
Stock Market
Stock markets fell on Friday, with the Dow posting its biggest weekly loss since October, as investors worried that the Fed would start raising interest rates sooner than expected.
The Dow Jones Industrial Average dropped 1.6%, or nearly 533 points, while the S&P 500 dropped 1.3%, or nearly 4,166 points. The Nasdaq, the tech-savvy index, dropped 0.9% to nearly 14,030 points. The market’s losses last week were exacerbated by the economy’s faster-than-expected recovery. The Dow Jones Industrial Average fell 3.5% for the week. The Nasdaq and S&P 500 were down 0.2% and 1.9%, respectively.
Bitcoin
The crypto king is also under intense selling pressure and it appears that Bitcoin is set to revisit the support at 30K. The intriguing element is that all of this is coming at a time when we hear plenty of positive news from the institutional side as they continue to ramp up their operation in order to provide access to Bitcoin for their clients. In addition to this, if we look at different surveys, it is becoming clear that more and more hedge fund managers are willing to allocate nearly 10% of their portfolio into Bitcoin and other digital assets and this is really a positive for digital assets in the long term.
Hodl’ers clearly know that this is not the time to be shaken out as they have witnessed many such situations in the past. However, for some reason, traders are focused on the Chinese News and how China continues to adopt a tougher stance on Bitcoin miners. However, despite recent crackdowns on Bitcoin miners, China remains the global centre for the creation of the digital currency. Prior to the crackdown on measures taken by officials, the country accounted for nearly 75% of global mining.
Bitcoin’s price has plummeted in recent months as a result of crackdowns by many countries, and it is now trading at nearly $35,000, well below its peak of $65,000 in April.
Forex
Investors should note that the dollar had its best week since April 2020, as short-term Treasury yields rose as a result of expected future rate hikes. The dollar index compares the US dollar’s value to a basket of major currencies. It gained 0.4% on Friday and 1.9% for the week.
Remember that, Christine Lagarde, President of the European Central Bank, will testify before the European Parliament’s Economic and Monetary Affairs Committee in a virtual hearing on Monday. Earlier this month, the ECB hinted that it was unlikely to change its current monetary policy. Similarly, the Bank of England’s monetary policy is expected to be announced later this week.
Gold
Gold prices continue to trader lower as investors monitor Fed’s next move and they will closely watch the upcoming Jerome Powell speech. There is no doubt that gold prices are extremely oversold, especially if we look at the RSI indicators and it is highly likely that we may see a bounce.
Something that will be closely monitored by traders is, if the Federal Reserve is going to stick to its mantra that rising inflation is temporary. Last Friday, gold prices fell nearly 6% as a result of the Fed’s decision to raise interest rates sooner than expected. This was the biggest weekly drop since March 2020.
Oil Demand
OPEC expects a minimal expansion in the production of oil by the United States despite the surge in prices, which would curb the rise in the supply of oil. This week, Brent, the international standard, reached $74 per barrel, while US crude reached $72.