Outlook on June 13
The US stock market declined dramatically before the Fed's meeting. The dollar rose, while the euro dropped.Major US stocks closed the week with a significant decline after US inflation report: the Dow Jones went down 2.7% , the NASDAQ lost 3.5%, the S&P500 fell by 2.9%
The S&P500 is trading at 3,900. It remains in the range of 3,800 - 4,000.
Friday's inflation report showed that US inflation had risen by 1% in May. This figure exceeded initial forecasts and greatly surpassed April's reading of 0.3%. The main reason for inflation is rising gasoline prices. Moreover, this issue is a matter of deep concern for Americans. The average price of gasoline exceeded $5 a gallon. Inflation is a major issue for the US authorities and for the Fed. On Wednesday, the Fed will raise the interest rate by 0.5%. However, it is also predicted that the rate will be increased by 0.75%. Taking these aspects into account, the US market fell dramatically and closed near the lows of the year. The growth was obviously prevented, the price is most likely to break through the lows, and the market will continue to fall. Therefore, investors should be cautious and refrain from buying so far.
Energy: Oil prices are holding at high levels despite the obvious problems with the US market. Brent crude oil is trading at $120.
Europe is increasing its gas storage facilities with the current gas capacity of 51%. Russian gas producer Gazprom has reported record earnings from gas sales despite the Russia-Ukraine conflict and EU sanctions. Moreover, Russia has received a whopping €93 billion from energy exports since the start of the conflict.
Food crisis: The issue of unblocking the port of Odessa has not been resolved. The Russia-Turkey and Turkey-Ukraine talks are being held. However, they have not been successful so far. Ukraine's grain will likely be stuck in Ukraine for a long time. Representatives of the Russian authorities in Zaporizhzhya have already stated openly that they sell local grain of Ukrainian origin to Africa and Asia. It totals nearly 1.5 million tons.
Russia's Central Bank sharply lowered its key interest rate by 1.5% to 9.5% at the close of last week as inflation in Russia slowed significantly after a huge jump of 17% in March and April. The Central Bank is seeking ways to support Russia's economy amid forecasts of an economic downturn in the face of draconian Western sanctions. At the same time, excessive strengthening of the ruble exerts pressure on the Central Bank and the Finance Ministry. The US dollar was trading at 57, the euro was at 60 on the MICEX exchange at the end of last week.
The dollar is strengthening before the Fed's meeting, while the euro is falling. The EUR/USD pair dropped below 1.0500 on Monday. This is the lowest rate since May 19. The pair is probably headed for the year's lows at 1.0350. The market has reacted to the worsening global economic outlook and expectations of the Fed's rate hike. The yen has declined to 134 against the dollar. This is the lowest rate since 1998 and is very favorable for Japanese exports. However, Japanese authorities are already considering interventions to support the yen....
Conclusion: The US market has declined and may continue to fall. Buying is very risky.