The U.S. dollar has strengthened and the benchmark 10-year Treasury yield touched its highest level in 3 years following hawkish remarks by the Federal Reserve chair, while oil prices remained volatile after briefly extending gains as Europe mulls sanctioning Russian energy imports.
Federal Reserve Chair Jerome Powell said at a National Association for Business Economics conference that the central bank must move “expeditiously” to contain high inflation by raising interest rates. If needed, the Fed should act “more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings,” he said, adding that the labor market was strong while inflation is “much too high.”
Richmond Fed President Thomas Barkin said that it’d be appropriate for interest rates to be increased by 50 basis points at the Fed’s subsequent policy meeting in order to curb inflation. Traders appear to concur with that assessment, with Fed Funds Futures contracts giving a 60.7 percent chance of a 50 basis point hike in May.
Other hawkish remarks have been made by Fed policymakers, including Richmond Fed President Thomas Barkin, who said that the domestic economy does not require aggressive Fed support at present. He said that the war, supply chain disruptions, and COVID-19 are factors that continue to impact inflation.
Atlanta Fed President Raphael Bostic anticipates at least six rate hikes in 2022 and two more in 2023. Financial markets reacted negatively to the hawkish remarks, with the three major equity indexes ending the day lower, breaking their recent winning streaks.
The Dow Jones ended Monday’s trading session 0.58 percent lower while the S&P 500 declined by 0.04 percent and the Nasdaq went down 0.40 percent. The markets were already jittery due to ongoing hostilities in Ukraine and uncertainties regarding the peace talks.
Recent moves by European Union member states towards considering a ban on Russian energy imports, along with attacks on a Saudi refinery, have provided support to the increasing oil prices.
However, after hitting a peak of $115.90, the price has dropped to settle at around $110.88, a decline of over 4 percent, as of 5:45 a.m. EDT. That comes as E.U. states remain at odds on the Russian oil embargo. Some countries like Germany are highly dependent on Russian supplies. Supply crunches have supported the price from falling further.
U.S. West Texas Intermediate crude is currently trading at $107.45, falling $4 from today’s opening. Declining prices could also be attributed to the strengthening U.S. dollar.
Meanwhile, the yield on 10-year U.S. treasury bonds peaked at 2.32 percent, the highest level since May 2019, while 2-year treasury notes hit 2.14 percent, following remarks from the Fed.
The pan-European STOXX 600 rose 0.36 percent after opening, boosted by gains in banking stocks following interest rate hike suggestions by Fed policymakers.
FTSE-100 opened at 7439.7 and is trading at 7477, a rise of 0.5 percent.
EUR/USD is currently at 1.0992 and finding it hard to break the 1.1000 mark owing to the dollar firming, while GBP/USD is at 1.3184.
European Central Bank President Christine Lagarde said that the bloc’s economic policy will not be synchronized with the decisions of the Federal Reserve. She is expected to speak again today.
The increasing value of Treasury bond yields has proved a dampener to rising gold prices, which is trading at 1927.73 from 1936.36 at the opening.
Bitcoin is at $42,692, after gaining over 10 percent over the week. Ether has also increased in value and is currently trading at $3,013.
There will be Fed talks today from New York President John Williams, Cleveland President Loretta Mester, and San Francisco Fed’s Mary Daly.
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