The bad mood at the beginning of the week

19.07.2021 13:12|Forex

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The Asian session brought a potential sell-off of risky assets, which seems to have spilled over to other markets as well, with red dominating the stock market indices today. Declines range from 0.4 percent for the Nasdaq to 2 percent for Italy's FTSE MIB.

In Japan, the Nikkei 225 Index fell 1.3 percent to close at its lowest level in two months, retreating for the fourth session in a row. The reason may be growing concerns about the spread of the delta variant of the COVID-19 coronavirus at the Tokyo Olympics.

Political themes in the Land of the Cherry Blossom are also starting to play an important role. Public support for Prime Minister Yoshihide Suga's cabinet fell to 35.9 percent in a Kyodo poll, the lowest level since he took power in September 2020.

Investors are now awaiting Tuesday's release of Japan's consumer price index for June.

ECB voice: We will persevere, we will not repeat mistakes

In Europe, the German DAX or Euro Stoxx 50 are trading at their lowest levels in eight weeks (15220 points and 3946 points respectively). Here the declines seem to be accompanied by concerns about the lack of sustainability of the economic recovery. However, the mood may be improved by the European Central Bank's decision.

At its meeting on Thursday, the ECB is expected to update its guidelines for monetary stimulation. The central bank is expected to remain with a very loose monetary policy. A review of the strategy was announced last week, with bank policymakers aiming to keep inflation at 2 percent and even allowing it to exceed that level for a short time.

Investors may be waiting for details on the retraining of the emergency pandemic PEPP purchase program, which is expected to last for many more months. As a result, the ECB's course may resemble the Bank of Japan's policy of keeping interest rates low for many years with support for the economy by any means available.

This in turn may negatively affect the euro, whose interest rate hike may not occur for decades. Earlier in the week, the euro fell below $1.18. In turn, the US Dollar Index rose to its highest level in 15 weeks. It is worth mentioning that last week Christine Lagarde, president of the ECB, said that the bank must be persistent in responding to the pandemic crisis, and that policymakers will not repeat their past mistake of tightening monetary policy too early.

Oil producers agreed

OPEC+ agreement was reached over the weekend, with Brent crude futures falling below $72 a barrel on Monday. After an initial setback and opposition from the United Arab Emirates, OPEC+ reached an agreement to increase oil production. The cartel decided to increase oil production by 400,000 barrels per day from August 2021. The agreement also gives Saudi Arabia, the UAE, Iraq, Kuwait and Russia higher baselines to which cuts will be measured from May 2022, as requested by the UAE. The UAE's oil production baseline will be raised to 3.5 million barrels per day from 3.16 million, but below the 3.8 million originally requested.

The rapid spread of the Delta variant of the COVID-19 virus is also weighing on oil prices as more restrictions are put in place to curb fuel demand.

Daniel Kostecki, chief analyst at Conotoxia Ltd. (Forex service

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