The Bank of Japan kept interest rates unchanged. The ECB will raise interest rates today

Wall Street closed up yesterday thanks to a jump in tech stocks on optimistic earnings. At the close, the Dow Jones Index (US30) increased by 0.15%, and the S&P 500 (US500) added 0.59%. The NASDAQ Technology Index (US100) jumped by 1.58%. According to Definitiv, the S&P 500 (US 500) will show a 5.9% year-over-year gain this earnings season, down from an estimate of 6.8% at the beginning of the quarter. Unrestrained inflation initially led markets to estimate a 100 basis point interest rate hike at next week's upcoming Fed meeting, but 80% probability is now on the side of a 75 basis point hike.

Shares of electric car maker Tesla (TSLA ) rose by 2% in extended trading after reporting higher quarterly earnings. Danaher (DHR), AT&T (T), Philip Morris (PM), Union Pacific (UNP), Blackstone Group (BX), Intuitive Surgical (ISRG), and Snap (SNAP) will report today.

Stock markets in Europe were mostly down on Wednesday. Germany's DAX (DE30) decreased by 0.20% yesterday, France's CAC 40 (FR40) lost 0.27%, Spain's IBEX 35 (ES35) fell by 1.18%, and Britain's FTSE 100 (UK100) closed down by 0.44%.

According to the German Federal Statistical Office (Destatis), producer prices for manufactured goods were 32.7% higher in June 2022 than in June 2021. In monthly terms, producer prices added 0.6%. In the UK, the Consumer Price Index reached 9.4% on an annual basis compared to 9.1% in May. Monthly inflation rose by 0.8%. The biggest upward contributions to the annual inflation rate were made by household services (mainly electricity, gas, and other fuels) and transportation (mainly due to higher gasoline and diesel prices). The last time this level of inflation was seen in the country was in March 1991. The Bank of England is very likely to raise the interest rate immediately by 0.5% at its next meeting.

Today is that long-awaited ECB interest rate meeting where the ECB will raise the interest rate. The single currency is up about 2% in the last three trading sessions on expectations that the ECB may raise interest rates significantly by 50 basis points, as well as Reuters reports that a key Russian gas pipeline will open on time after maintenance. But most likely, ECB head Christine Lagarde will not risk her reputation, so it is easier for the ECB to hold the first 0.25% increase and the next one already at 0.5% or even 0.75%. Investors' attention will also be focused on the so-called "anti-fragmentation" package, which is expected to be announced along with the interest rate decision.

On Wednesday, the European Union urged member states to cut gas use by 15% by March as an emergency measure after President Vladimir Putin warned that Russian supplies routed through Europe's largest pipeline could be cut or even halted.

Italian Prime Minister Mario Draghi won a vote of confidence in the upper chamber's Senate on Wednesday, but the three main coalition parties refused to participate.

Oil prices are falling as demand concerns outweigh limited supply. US crude oil inventories increased by 3.5 million barrels last week, well above analysts forecasts.

Asian markets were mostly up yesterday. Japan's Nikkei 225 (JP225) gained 2.67%, Hong Kong's Hang Seng (HK50) added 1.11%, and Australia's S&P/ASX 200 (AU200) was up by 1.65%.

The Bank of Japan kept interest rates and monetary policy unchanged. The monetary policy report highlights concerns about the economy above any potential impact on the yen. The BOJ lowered its economic growth forecast for this year, so the falling economy needs continued support. The inflation forecast was 2.3% for the end of the year. So the BoJ is still targeting stimulus, despite a wave of interest rate hikes by other central banks. But it should be noted that there are some changes in the Bank of Japan's board members. The government announced Tuesday that it would appoint Hajime Takata and Naoki Tamura as new BOJ board members. Both representatives criticize excessive easing policies, especially Takata-san. Therefore, there is a possibility that there could be a change in the Bank of Japan's rhetoric soon.

The economic outlook for China remains fragile, which fuels negative sentiment around the world as well. Despite China having recovered quickly from the stringent Covid restrictions, worries about the housing sector and the high likelihood of new restrictions are undermining confidence and keeping consumers on edge.

S&P 500 (F) (US500) 3,959.90 +23.21 (+0.59%)

Dow Jones (US30) 31,874.84 +47.79 (+0.15%)

DAX (DE40) 13,281.98 −26.43 (−0.20%)

FTSE 100 (UK100) 7,264.31 −31.97 (−0.44%)

USD Index 107.08 +0.40 (+0.37%)

• – BoJ Outlook Report at 06:00 (GMT+3);
• – BoJ Interest Rate Decision at 06:00 (GMT+3);
• – BoJ Press Conference at 06:00 (GMT+3);
• – Eurozone ECB Monetary Policy Statement at 15:15 (GMT+3);
• – Eurozone ECB Interest Rate Decision at 15:15 (GMT+3);
• – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• – US Philadelphia Fed Manufacturing Index (m/m) at 15:30 (GMT+3);
• – Eurozone ECB Press Conference at 15:45 (GMT+3);
• – US Natural Gas Storage (w/w) at 17:30 (GMT+3).

by JustMarkets, 2022.07.21

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.