New week begins on a negative note; the Friday relief across the US equities, and which was put on the back of Jerome Powell saying that the bigger rate hikes are off the table for now, couldn’t prevent the Dow Jones extended losses for the seventh consecutive week, the longest losing series streak since 2001. Nasdaq fell near 3% and the S&P500 ended last week near 2.5% lower, at the cusp of the bear market.

Activity in US and European futures hint that Friday’s rebound was certainly nothing more than a dead cat bounce.

Recession worries weigh on risk sentiment.

And the risk of Elon Musk walking away from the Twitter deal weighs on the TWTR share price.

In the energy markets, the barrel of US crude trades below the $110 mark on recession worries, but the mounting geopolitical tensions in Europe will certainly limit the selloff, as Finland and Sweden are are now willing to join NATO.

In cryptocurrencies, Bitcoin and Ethereum shrugged off the stress of the Terra dollar’s collapse last week, and stabilized above the $30K and the $2000 respectively over the weekend.

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The dust seems to be settling in cryptocurrencies. Terra and Luna are now worth almost nothing but Bitcoin returned past the $30K, which is a sign that the confidence in the broader sector may have not been damaged as much as we first feared.

European stocks opened in the green and US futures are pointing to the upside, yet volatility remains high, warnings that the wind could change direction rapidly, and the high volatility environment is more favourable for further losses than sustainable gains.

On the geopolitical front, the Europeans are going around their own sanctions against Russia by opening accounts with Gazprom bank to pay the Russian gas in exchange of rubles (!!), but the latest news suggest that Russia is now cutting the German gas as a retaliation to its sanctions.
Of course, the Europeans have been quite bad in this poker game - they showed too openly how scared they were to lose the Russian gas that now, Russia is gaining the upper hand.

European gas futures gained another 13% yesterday, and the pressure on energy prices remain clearly tilted to the upside.

Saudi Aramco has surpassed Apple in terms of market capitalization this week, to become the world’s most valuable company, and the US dollar index extended gains to a fresh 20-year high.

Everyone is now wondering when the dollar rally will end!

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US inflation data didn’t print a soft-enough figure to reverse the market selloff.

Disappointing US inflation data sent another shock wave to the US stock markets sending all major US indices tumbling on Wednesday. The S&P500 lost more than 1.5%, while Nasdaq tumbled more than 3%.
Bitcoin slumped below the 2021 lows on the back of a broad-based risk-off selloff, and panic due to TerraUSD losing its dollar peg earlier this week.

The US dollar remained upbeat, and the dollar index returned above the 104 mark as the lower-than-expected cool down in the US inflation figure revived the Fed hawks.

The pound-dollar is testing the 1.22 this morning as the UK-European relationship is souring on the Northern Ireland headache.

Gold rebounded from the 200-DMA, as the US 10-year yield eased despite yesterday’s higher-than-expected inflation print in the US, as US crude saw a decent dip buying interest below the $100 per barrel, even with the souring prospects of a healthy global economic recovery.

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It’s D-day of the week: we will see whether inflation in the US started easing in April after hitting a four-decade high in March, and if yes, by how much.

A soft inflation read will come as a relief that the Federal Reserve’s (Fed) efforts to tame inflation start paying off, but any disappointment could send another shock wave to the market.

For now, activity on Fed funds futures give almost 90% chance for a 50-bp hike in FOMC’s June meeting; there is a lot left to be priced for a 75bp hike, if the data doesn’t please. To avoid pricing in a 75bp hike at next FOMC meeting, we must see an encouraging cooldown in inflation.

In the FX, the US dollar extended gains, despite the easing yields yesterday, as the risk-off flows continued supporting the greenback. The levels against the majors like euro, yen and sterling remained flat, but the positive pressure in the dollar, combined with Turkey’s unconventional monetary policy start giving signs of exhaustion. The dollar-try advanced past the 15 mark, and the government asked institutions to make their FX operations within the most liquid trading hours. Two weeks ago, the bank had revised its regulations on banks' reserve requirements, applying them to the asset side of balance sheets in order to strengthen its macroprudential policy toolkit. The latter required reserves now pressure the overnight rates to the upside – suggesting that the unconventional policy is near limits.

Energy are up and down… but mostly up. The barrel of US crude tipped a toe below the $100 level on news that the Europeans softened their sanctions proposal against the Russian oil, but oil is already above the $100 this morning. The upside potential is fading due to slower global growth prospects, and the Chinese lockdown.

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The selloff in stocks, bonds, and Bitcoin deepened on Monday. Even commodities sank and crude oil tumbled more than 8% on the back of mounting worries of a seriously tighter, and potentially ineffective Federal Reserve (Fed) policy that would, to fight back the skyrocketing inflation, pull back support aggressively enough to cause recession. Goldman says the S&P500 could fall to 3600 in case of contraction.

Another worry is that, even with a significantly tighter monetary policy, the Fed may not be able to tame inflation as much as desired. This is what the inflation expectations tell us.

The S&P500 dive another 3.20% yesterday, as Nasdaq tanked another 4.30%.

And money doesn’t flow to ‘safer’ US sovereign bonds, as investors are rapidly unloading the US treasuries as well, given the Fed is now letting its holdings mature to reduce the size of its balance sheet which went through the roof since the 2007 subprime crisis.

The US 10-year yield hit 3.20% yesterday, the highest level since November 2018.

Gold lost more than 1.50% along with the everything rout yesterday and Bitcoin slipped shortly below the $30K level. The yen and the Swiss franc depreciated against the US dollar, as well.

So, where does the money go? To the US dollar – the safest of the safe haven assets.

But, there is one potential catalyzer this week, that could eventually slow down the market selloff: US inflation data due Wednesday. The consumer price index is expected to have eased to 8.1% in April from 8.5% printed a month earlier. A softer inflation is the only thing that could give hope to investors.

Here is the link to the Medium blog article: https://medium.com/swissquote-education

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