Is it a hot week starting in the financial markets? Investors' attention is focused on what the world's most important central bank, the US Federal Reserve, will decide. Even if there is no breakthrough in the Fed's financial policy, the macroeconomic projections will be important.
Expectations might be that the Fed would maintain a very loose monetary policy during its two-day meeting, the result of which will be announced on Wednesday. In the comments of Jerome Powell, the chairman of the Federal Reserve, the market will look for clues about the central bank's view on rising inflation in the US.
So far, few Fed members have urged a debate on how and when to start tapering support for the economy, but there have also been those who have warned that inflationary pressures are not just temporary and significant further progress towards the central bank's employment and inflation targets is still needed.
Investors' eyes may also be on the Fed's macroeconomic projections, where there is talk of possibly signaling an interest rate hike in 2023. Thus, an improved outlook for GDP and labor market along with an increase in the path for the cost of money could be beneficial for the USD.
Optimism seems to dominate the stock markets ahead of Wednesday's Fed decision, with European equities reaching record highs on Monday. Positive sentiment also seems to persist after last week's meeting of the European Central Bank and statements by its head, Christine Lagarde. Among other things, she said that monetary and fiscal stimulus should remain in place until there are clear signs that a strong, solid and sustainable economic recovery is underway. Lagarde also said that there may be less need for extraordinary support measures from the ECB in the future, as the recovery is now expected to proceed faster than previously anticipated.
Hopes for an improving world economy today may continue to push oil prices higher, extending a series of three-week rises. An improved fuel demand outlook and an acceleration in COVID-19 graft, which translates into a lifting of the travel restriction, may be behind it.
On Friday, the International Energy Agency said in its monthly report that OPEC+ needs to increase output. The cartel recently agreed to maintain its plan to gradually ease supply constraints through July, signaling continued strengthening in market fundamentals. Goldman Sachs, meanwhile, released a note indicating that it expects the barrel of Brent to rise to $80 this summer. Before noon today, a barrel of Brent cost $73 and WTI cost $71.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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