The key US stock market indices – Dow Jones, NASDAQ, and S&P 500 – ended with a slight increase. However, as stated previously, the current growth of the stock market makes no sense. The upward movement is feeble and resembles a common upward pullback preceding a new sharp decline. The fundamental and geopolitical environments remain extremely complex and challenging, so we do not anticipate a rapid increase in stocks and indices in the near future. The geopolitical situation continues to deteriorate, which is a point worth reiterating. In the coming days, Moscow will announce a "package of measures" against Lithuania and the rest of the European Union for blocking the transit of goods to Kaliningrad. We cannot speculate on the nature of the package, but relations between the European Union and the Russian Federation may deteriorate further. Also, recall that a new Fed meeting will be held at the end of the month, at which 0.75 percentage points will increase the key rate with an 80 percent chance. In many respects, the extent of monetary policy tightening will depend on the inflation report released on Wednesday of this week. However, even if, by some miracle, the consumer price index begins to decelerate, the rate will still be increased by 0.5%, which is also a significant amount. Consequently, this week's most important event will be the US inflation report.
The official forecasts for this report indicate that most experts anticipate a further acceleration in price growth. According to their projections, the annual inflation rate in June will be 8.8 percent. If this prediction is accurate, then there will be no doubt that the rate will rise by 0.75 percent. Remember that the Fed has already raised the interest rate to 1.75 percent, and inflation has been steadily increasing. A similar circumstance exists in the United Kingdom, where the Bank of England also raises the rate at each meeting. All of this proves that we were correct when we predicted a longer period of fighting inflation than the Fed anticipated. Let's calculate. Inflation has been rising for more than a year, and the Fed has been actively tightening monetary policy for the past 5-6 months, yet inflation continues to rise. Then, how long will it take for the inflation rate to stop growing and then return to 2%? From our perspective, at least one and a half to two years, assuming the Fed rate does not exceed 3.5 percent. The US stock market and all risky assets, including cryptocurrencies, will face even greater difficulties. In the coming months, stocks, cryptocurrencies, and indices will continue to be vulnerable in one way or another.
