All eyes turn to inflation figures in global markets

Inflation concerns in US continue to affect asset prices, volatility keeps on increasing in markets

The global stock markets followed a mixed course last week when the Federal Reserve increased interest rates by 50 basis points for the first time in 22 years. Next week, they will focus on the inflation data, especially from the US.

While the inflation concerns in the US continue to affect asset prices, the volatility in the markets keeps on increasing.

Inflation in the US, which rose to 8.5%, the highest level in the last 41 years, prompted the Fed to raise interest rates by 50 basis points for the first time since 2000. Thus, the Fed increased the policy rate to a range between 0.75% and 1%.

The Fed said inflation remains high, reflecting the supply and demand imbalances related to the COVID-19 pandemic, rising energy prices, and wider price pressures.

It added that the monetary policy stance is appropriately tightened for a target of 2% inflation and maximum employment level.

The Fed will also start to shrink its balance sheet on June 1.

Fed Chairman Jerome Powell, on the other hand, stated that an additional 50-basis-point rate hike should be on the table in the next few meetings.

US stock markets, which gained more than 3% value on Wednesday with the Fed’s policy decision and Powell’s statements, gave back all of their gains on Thursday amid concerns that the Fed may have difficulty in preventing inflation.

According to analysts,the fear that the Fed might have been late in the interest rate hike had an impact on pricing.

With the aforementioned concerns and the selling pressure, which also affected the bond markets, the US 10-year bond yield rose to 3.1% on Friday, the highest level since November 2018.

The ounce price of gold maintained a downward trend to the third week, closing the week at $1,883 with a decrease of 0.8%.

Stock markets in the US were down for the fifth week in a row, which marks the longest series of declines since 2011 for the S&P 500 index and since 2012 for the Nasdaq index.

While the inflation pressure in the US continues to be the main risk factor in the markets, all eyes have turned to the inflation data that will be announced on Wednesday.

According to the employment data released on Friday, non-farm employment increased by 428,000 in April, surpassing expectations.

Analysts said the aforementioned data had an impact on reducing risk appetite, fearing that it could lead the Fed to become more hawkish.

They argued that the inflation data to be announced next week will loosen after a long hiatus, adding that the aforementioned data is likely to increase volatility in the markets.

With these developments, the S&P 500 index lost 0.21% in value, the Nasdaq index went down 1.54% and the Dow Jones index fell 0.24% on a weekly basis.

Europe’s eyes are on Lagarde

While the European stock markets followed a sales-weighted course parallel to the US stock markets, next week all eyes will turn to the statements by European Central Bank President Christine Lagarde on Wednesday and the inflation data to be announced in Germany.

In Europe, the Bank of England increased the policy rate by 25 basis points to 1% this week in line with the expectations. It is the highest level since 2009.

Against the increasing inflation pressure across Europe, the hawkish tones in the verbal guidance of the European Central Bank officials intensify.

The Russia-Ukraine war still remains as the main risk factor for Europe, according to analysts.

The euro/dollar parity maintained the downward trend for the fifth week in a row and closed the week at 1.0545, just below the previous close.

This week, the FTSE 100 index in the UK lost 2.08%, the DAX index in Germany fell 3% and the CAC 40 index in France dropped 4.22%.

On the Asian side, there were no transactions in the Chinese and Japanese markets during the big part of the week due to the holiday, while Japan managed to differentiate positively on the days when the markets were open.

The ongoing pandemic in China continues to be the main risk perception for China.

While the concern that the situation in China may cause inflation pressure globally is getting stronger, the lack of easing in China’s economic policies despite the expectations increases the anxiety of the investors.

The dollar/yen parity, which continued its upward trend for the ninth week, closed the week with an increase of 0.6% at 130.6, the highest level over the last 20 years.

With these developments, the Nikkei 225 index in Japan gained 0.58% on a weekly basis, while the Shanghai Composite Index in China decreased by 1.49% and the Hang Seng index in Hong Kong fell 5.16%.

Turkiye’s BIST 100 index in Borsa Istanbul managed to differentiate positively from the global stock markets during the transaction in the last two days of the week.

In Borsa Istanbul, the BIST 100 index ended the week at 2,458.72 points with an increase of 1.16%, while the dollar/Turkish lira increased 0.68% to 14.9528.


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