Investor demand for commodities and stocks seems to be waning as risk appetite fades. US Treasury bonds seem to be gaining in value.
In Europe, major stock exchanges and their indices fell by about 1 percent, which seemed to be influenced by concerns about global economic growth and deteriorating market sentiment.
In the U.S., the Federal Reserve said, according to the latest FOMC meeting minutes, that significant progress is being made in the U.S. economy, which could lead to a faster reduction in the asset purchase program than previously expected. Thus, the Fed still has an open door for possible interest rate hikes in late 2022 or early 2023.
Central banks suggest easing
However, the bond market seems to indicate that the prospect of a hike is receding. The peak of the economic cycle is near. GDP and inflation could therefore start to fall after 2021. The same trend seems to be noticed by the Chinese central bank. Indeed, the PBoC has suggested easing monetary policy to stimulate growth, including lowering the reserve ratio and increasing liquidity.
The European Central Bank is also expected to guard against a too rapid tightening of monetary policy. According to unofficial information, the ECB is to change its inflation target, or in fact raise it, from the current "close to but below 2 percent" to "2 percent." This, in turn, could indicate that interest rates in Euroland will not rise for many more quarters or even years.
Three days of falling oil prices
The situation has also reversed in the oil market, where a rapid correction is taking place after very strong increases, and the price seems to have fallen for the third day in a row. Brent crude oil has dipped from over $77 to $73, and investors are still worried that OPEC+ will not reach an agreement on expanding production and countries will start to release oil production independently.
After divergences between Saudi Arabia and the United Arab Emirates on expanding oil production, the cartel has yet to set a date for its next oil policy meeting. Meanwhile, API data showed that U.S. crude inventories fell for the seventh consecutive week, by 8 million barrels.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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