According to central bankers, the era of ultra-low inflation will not return soon

Federal Reserve Chairman Jerome Powell reiterated the Central Bank's commitment to tighten monetary policy further to reduce inflation as GDP data showed a faster-than-expected decline in quarterly economic growth. Real gross domestic product (GDP) fell by 1.6% year-over-year in the first quarter of 2022. This situation led to a rise in the US Dollar Index and a decline in the major indices. As the stock market closed yesterday, the Dow Jones Index (US30) added 0.26%, while the S&P 500 Index (US500) decreased by 0.08%. The NASDAQ Technology Index (US100) fell by 0.03%.

The US Personal Consumption Expenditures Price Index, part of the Fed's inflation tracking indicators, will be released today. Analysts expect the PCE to rise another 0.4%. In other words, experts do not expect inflation to slow down.

Equity markets in Europe traded lower yesterday. German DAX (DE30) decreased by 1.73%, French CAC 40 (FR40) fell by 0.90%, Spanish IBEX 35 (ES35) lost 1.56%, British FTSE 100 (UK100) closed on Wednesday down by 0.15%.

European Central Bank President Christine Lagarde said that the era of ultra-low inflation that preceded the pandemic is unlikely to return. Speaking at an ECB forum in Sintra, Portugal, along with US Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey, Lagarde added that central banks need to adjust to higher price growth expectations.

This week, a series of data on inflation rates in European countries will be released. Germany's preliminary consumer price level was 7.6% year-over-year, down from 7.9% in May. But in Spain, the inflation rate jumped from 8.7% to 10.2% annually.

Morgan Stanley now expects the Eurozone to fall into a moderate recession in the fourth quarter of this year and show GDP contracting for the next two quarters before resuming growth in the second quarter of next year, driven by increased investment.

Predictions that the Eurozone will likely slip into recession because of energy security problems caused by the war in Ukraine prompted investors to buy the Swiss franc. The Swiss franc rose on Wednesday to its highest level against the euro in four months as growing fears of a recession in the Eurozone led investors to seek safe-haven assets.

Palladium increased by 6.2% yesterday, while nickel gained 9.2% amid UK sanctions against Russian billionaire and co-owner of Nornickel Vladimir Potanin.

Fears of a global slowdown continue to weigh on copper and the Australian dollar. Copper has long been known as a barometer for assessing the global economy's health, and the Australian dollar has a high positive correlation with copper. If this week's PMI data is worse than expected, copper could continue to fall.

The Energy Information Administration (EIA) did release new crude oil inventory data yesterday. Last week's report was not published due to server problems. The US crude oil inventories have declined over the past two weeks, falling by 2.8 million barrels. But despite the decline in inventories amid strong demand, oil quotes were down by 2% yesterday as disappointing US GDP data counterbalanced the negative price sentiment. OPEC+ is meeting today, so volatility in oil prices will remain high.

Asian markets were trading lower on Wednesday. Japan's Nikkei 225 (JP225) decreased by 0.91% yesterday, Hong Kong's Hang Seng (HK50) ended the day down 1.88%, and Australian S&P/ASX 200 (AU200) lost 0.94%.

Industrial production in Japan fell by 7.2% in May from the previous month. Of the 15 industries surveyed, production declined in 13. The auto industry was hit the hardest due to parts shortages resulting from the COVID-19 blockage in Shanghai. Auto production fell 8.0% from the previous month, including a 33.2% drop in truck production.

China's official PMI returned above the 50 levels. It suggests that China's economy improved in June compared to May, but there are signs in the sub-indices that a full recovery will take some time. The headwinds remain, including a still depressed real estate market, low consumer spending, and fear of any recurring waves of infections.

S&P 500 (F) (US500) 3,818.70 −2.85 (−0.075%)

Dow Jones (US30) 31,027.92 +80.93 (+0.26%)

DAX (DE40) 13,003.35 −228.47 (−1.73%)

FTSE 100 (UK100) 7,312.32 −11.09 (−0.15%)

USD Index 105.12 +0.61 (+0.59%)

• – Japan Industrial Production (m/m) at 02:50 (GMT+3);
• – China Manufacturing PMI (m/m) at 04:30 (GMT+3);
• – China Non-Manufacturing PMI (m/m) at 04:30 (GMT+3);
• – UK GDP (q/q) at 09:00 (GMT+3);
• – Eurozone German Retail Sales (m/m) at 09:00 (GMT+3);
• – Switzerland Retail Sales (m/m) at 09:30 (GMT+3);
• – Eurozone French Consumer Price Index (m/m) at 09:45 (GMT+3);
• – Eurozone German Unemployment Rate (m/m) at 10:55 (GMT+3);
• – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
• – OPEC+ meeting (m/m) at 12:00 (GMT+3);
• – US PCE Price index (m/m) at 15:30 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – Canada GDP (q/q) at 15:30 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

by JustMarkets, 2022.06.30

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.