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Market Insights

Can Fed handle this?

  • Ramón Morell
    • Commodities
    • Forex
    • Indices
    • Cryptocurrency
Blog Images - Skilling (19).png

“It's a hurricane. Right now, it's kind of sunny, things are doing fine, everyone thinks the Fed can handle this”


JPMorgan Chase Chief Executive Jamie Dimon on Wednesday urged investors to brace for market turmoil in the weeks ahead - warning of unusual financial conditions for a potential "hurricane" for the economy.

Dimon, the head of the largest U.S. bank, said factors such as Russia’s invasion of Ukraine and the Federal Reserve’s tightening of monetary policy in response to decades of high inflation could add to market dislocations.

“It's a hurricane. Right now, it's kind of sunny, things are doing fine, everyone thinks the Fed can handle this,”


Dimon said during a conference sponsored by AllianceBernstein, according to Bloomberg.

"That hurricane is right out there, down the road, coming our way" he added. “We just don't know if it's a minor one or Superstorm Sandy or Andrew or something like that. You better brace yourself.”

The U.S. S&P500 index closed at 4,101.23 on Wednesday June 1, losing 0.75%, the second straight loss after seven consecutive session gains. Looking back, the S&P5000 has lost 1.29% over the past 4 weeks. Over the past 12 months, prices have fallen by 1.70%. Looking ahead, the index futures are in the positive side of the market on Thursday morning. Trading Economics are expecting the S&P500 to end the quarter at 4,053.45 and a year later at 3,754.67, based on their global macro model forecasts and analyst expectations.

S&P500 one-day performance on Wednesday June 1, by finviz.com

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See these two heat maps, the one shows its performance on Wednesday, and the other one shows a whole week performance until Wednesday. Note the color difference, remarking that the first days of the week were soundly positive and thus, are still showing green textures across the stocks map.

S&P500 one-week performance on Wednesday June 1, by finviz.com

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European markets

European shares were higher on Thursday, with Germany's DAX recovering 0.5% after a two-session losing streak. Investors continued to assess how the recent spate of better-than-expected inflation reports will affect interest rates and economic growth and await further guidance from European Central Bank officials on the path of rate hikes.

On the economic data side, producer price inflation in the euro area has shown rather weak, -1,2% in April when expectations were 2,3% up, 37.2% yearly versus 38.5% expected and 36.8% in March.

This is one more sign of a change in the impulse of inflation in Europe, particularly after German retail sales prompted a 5.4% decrease in April earlier this week while the forecast was no change at all from March. UK markets were closed on Thursday and Friday for the Queen Elizabeth Platinum Anniversary.

Asian Markets

The Shanghai Composite rose 0.42% to 3,195 on Thursday, while the Shenzhen Composite rose 0.67% to 11,628, closing at its highest level since mid-April, as sentiment improved after Chinese authorities pledged to speed up new measures to stabilize the economy. The package of 33 measures includes tax, financial, investment, consumption and industrial policies. The plan also stipulates that the amount of political bank loans will be increased by 800 billion yuan to provide financial support for infrastructure construction.

New energy stocks led gains after China unveiled a 5-year plan to increase the share of renewables in its energy mix to 33%, with Contemporary Ampere (2.8%), Northern China Rare Earth (4, 7%) strong Up Blue Garden New Energy (10%). Chinese automakers also rose after halving the purchase tax to boost car consumption, including Chongqing Changan (6.8 percent) and Great Wall Motor (5 percent). (Source: Trading Economics)

Forex

EURUSD is struggling to hold on to the 50-Day SMA ahead of the Non-Farm Payrolls (NFP) which is to be published on Friday at 14:30 CEST. On Wednesday it fell to a fresh weekly low (1.0651) following an unexpected improvement in the ISM survey in the US. Also, the NFP is anticipated to show a further improvement in the labor market. (Source: dailyfx.com)

EURUSD Daily candle chart, Skilling MT4 Platform

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Sterling fell to $1.26, but remained well above a two-year low of $1.216 hit on May 13. With the rising cost of living, investors have weighed the prospect of higher interest rates against the risk of an economic slowdown or even a recession later this year. Markets expect the Bank of England to raise rates by 138 basis points by the end of the year, as inflation is at a 40-year high and is expected to hit double digits in the third quarter.

Meanwhile, consumer confidence fell to a record low and factory activity rose at the slowest pace since January 2021. Earlier this week, optimism that a new cost-of-living support package would help boost consumer spending supported the pound. The package, which includes a new temporary tax on energy profits for oil and gas companies, is expected to raise around £5bn next year to help cover the cost of living.

The yen weakened to 130 against the dollar, near a 20-year low of 131.3 hit in early May, as the dollar rose on inflation concerns and broader risk-off sentiment. Meanwhile, Japanese policymakers have repeatedly dashed hopes that authorities will help support a rapidly depreciating currency. The Bank of Japan doubled down on its massive stimulus program in April and reiterated its commitment to a policy of ultra-low yields. This underscores the growing political divide between Japan and the U.S. and puts the yen under downward pressure.

Commodities

Gold made a swift recovery on late Wednesday and Thursday June 1 & 2, rebounding from two-week lows in the previous session. Gold is seen as a hedge against inflation and economic and political uncertainty, but higher interest rates increase the opportunity cost of holding the low-yielding metal.

Gold one-hourly candles, Skilling MT4 Platform

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WTI crude futures fell more than 2% to below $113 a barrel on Thursday after Saudi Arabia said it was ready to increase oil output if Russian output fell after EU sanctions and U.S. President Joe Biden is expected to visit the kingdom and most probably will exert pressure to increase production to lower fuel prices.

The Financial Times, citing a diplomatic source, said talks were under way for Saudi Arabia and the United Arab Emirates to immediately increase production, which could be announced at a later OPEC+ meeting.

Also earlier this week, speculation that some producers were considering suspending Russia's participation in the OPEC+ production deal added to the bearish sentiment. Thursday's losses followed a brief rally in oil markets as early reports of a partial EU ban on Russian oil and Shanghai's reopening supported prices. Meanwhile, the European Union failed to reach an agreement on Wednesday on a sixth set of sanctions against Russia after Hungary made new demands.

Cryptos

Bitcoin traded just below 30,000 USD this Thursday, having gained 20.80% over the last four weeks, but its price is 23.73% below what it marked a year ago. Trading Economics is forecasting Bitcoin to be priced at USD 27,652.9 in one year, according to their global macro models projections and analysts expectations.

Not investment advice. Past performance is not indicative of future results. Trading cryptocurrency may not be available depending on your country of residence.

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