Fears of a global recession are dominating markets, but Fed optimism and the easing of restrictions in China are boosting hope among investors.

Fears of a global recession are dominating markets, but Fed optimism and the easing of restrictions in China are boosting hope among investors.

— July 2nd, 2022

Last week, US Federal Reserve (Fed) Chairman Jerome Powell admitted to Congress that a rapid rise in interest rates could cause a recession even if it is not the desired effect. He went on to point out that “the US economy is still very strong and robust enough” to withstand central bank attempts to rein in inflation without slipping into recession. Additionally, the National Association of Realtors (NAR) said on Monday that its pending home sales index rose unexpectedly in May in the United States. All of these factors weighed on the US dollar, whose index fell on Monday and in early trading on Tuesday against main rival currencies.

Elsewhere, further easing of COVID-19 restrictions in China helped support Asian equities. Following China’s decision to relax some quarantine requirements for international arrivals, Hong Kong stocks moved into positive territory.

Oil rose. This increase is fueled by worries about an economic slowdown and also worries about the loss of Russian supplies under sanctions related to the conflict in Ukraine.

In the Forex market, the euro was helped by expectations that the European Central Bank will soon raise interest rates for the first time in over a decade. The Australian and New Zealand dollars rose slightly. The Canadian dollar rose against most major currencies on rising oil prices.

Potential market drivers closely watched this week are: ECB Central Bank Forum on Wednesday, US Core PCE Price Index on Thursday and Eurozone CPI on Friday. Will we see an improvement in general market sentiment?

Written By Steve Keutcha  –  Head of Trading