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Global markets focused on the Fed’s interest rate decision in the new week

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Inflation, which continues its upward trend on a global scale, especially in the United States, continues to have an influence on prices in the markets.

The consumer price index (CPI) rose 1% month-on-month in May, showing the highest increase since December 1981 at 8.6% year-on-year, according to data released in the United States on Friday. .

Contrary to expectations, inflation has continued to rise, which has reduced risk appetite in the markets, fearing that the hawkish Fed’s aggressive policies may continue longer than expected.

While the above development has increased the selling pressure on bond markets, the reversal of the yield curve in some assets has reinforced recession fears.

As a result, while the US 2-year bond yield reached its highest level since 2007 at 3.20%, the US 3-, 5-, 10- and 30-year bond yield curve began to assess the risk of recession.

On the other hand, the possibility of a policy rate hike of 75 basis points, which Fed officials previously described as unlikely, was again included in the price.

At the meeting to be held this week on money markets, it was priced that the Fed would raise interest rates by 75 basis points to control inflation with a 25% probability, while the probability of a rise in interest rates of 75 basis points increased to 53 percent at the meeting to be held in July.

Although the possibility that China’s new type of coronavirus (Covid-19) epidemic is not entirely under control has suppressed oil prices, the average price of gasoline in the US has reached an all-time high with $ 5 per gallon (about 3.8). liters).

With these developments, the S&P 500 Index fell 2.91%, the Nasdaq Index 3.52% and the Dow Jones Index 2.73% in the New York stock market on Friday. US index futures contracts started the new week with sellers.

While the European Central Bank (ECB) did not change the benchmark rate last week in line with expectations, this week the region’s eyes turned to the Bank of England’s (BoE) monetary policy decisions.

While it is considered certain that the BoE will raise interest rates by 25 basis points at Thursday’s meeting, the possibility of a higher rate hike by the bank is also discounted.

On the other hand, US inflation, which exceeded expectations on Friday, caused bond yields to rise rapidly in Europe, while Germany’s 10-year bond yield rose to 1.52%, the highest level. high since April 2014.

While ECB and BoE officials have said macroeconomic data will play a major role over the course of monetary policy in their verbal guidance, this week’s busy data calendar in the region draws attention.

Although these developments exacerbated the selling pressure in regional equity markets, the DAX 30 index was 3.08% in Germany on Friday, the FTSE 100 index was 2.12% in the UK, the CAC 40 index was by 2.69% in France and the FTSE MIB 30 in Italy. The index lost 5.17 percent. Index futures contracts in Europe also started the new week with a decline.

As Asian equity markets followed the seller’s price on Friday in the new week, parallel to global markets, the flow of news that will negatively affect the already low risk appetite continues.

While some measures are being re-implemented following the escalating cases of Covid-19 in China, the growing tension between China and the United States over Taiwan increases the risks in the markets.

Ahead of the Bank of Japan (BoJ) monetary policy decisions on Friday, the dollar / yen parity rose to 135.16, its highest level since January 2002, on fears that the Fed will continue its aggressive policies.

BoJ Chairman Haruhiko Kuroda, in his statement on the subject, said he did not want the sharp depreciation of the Japanese yen and was closely monitoring the movements in the exchange rate and its impact on the economy.

Noting that the Japanese economy is still under the influence of the Covid-19 outbreak, Kuroda said he will continue to support the economy with accommodative monetary policy to ensure wages rise.

Following the increased volatility of the South Korean won, it was said that developments were closely followed in statements by the Ministry of Finance and the central bank.

With these developments, Japan’s Nikkei 225 Index is 2.94%, China’s Shanghai Composite Index is 1.2%, Hong Kong’s Hang Seng Index is 3.24%, and l ‘Kospi index in South Korea is 3.3%.

The BIST 100 index, which followed a sales-weighted trend in line with global markets on Friday, ended the day at 2,543.10 points down 1.11%.

Dollar / TL, on the other hand, is trading today at 17.2600 at the opening of the interbank market, after closing at 17.1192 with a drop of 0.45 percent on the last trading day of last week.

Analysts said the country’s balance of payments and industrial production, UK growth and industrial production data would be followed today and noted that market volatility could continue until the Fed’s decisions on Wednesday.

Stating that investors should act with caution in this process, analysts said that technically, the levels of 2,500 and 2,440 in the BIST 100 index stand out as support and 2,570 points as resistance.

Economists who participated in AA Finans’ expectations polls, The current account is expected to have a deficit of $ 3 billion 390 million in April and that the calendar-adjusted industrial production index will increase by 8.3 percent in April compared to the same period last year.

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