Global stock indices ended the previous week in different directions amid issues with the influence of the Indian strain of COVID-19 and fears that the US economic growth will slow down on the wave of the escalating tensions between the United States and China, which resulted in the desire to protect their national companies from cyber threats.
The situation in the market fully reflects the impact of the coronavirus pandemic, which is reflected in the reluctance of a significant number of Americans to go to work, who prefer to live on benefits. Of course, this primarily applies to the low-paid workforce, where the difference between the level of wages and benefits is not so great.
In addition, the outbreaks of COVID-19 in different countries indicate that this problem will remain permanent for a significant period of time, which means that the impact of this virus on business activity will remain extremely high.
Investors were also irritated with the speeches of some Fed members, who began to talk about the possible changes in the prospects of the Fed's monetary policy, which caused high volatility in the stock markets, primarily in America. Nevertheless, the publication of the minutes of the regulator's last meeting somewhat reassured the markets, which led to the continuation of growth in the US stock indices. And although the market is talking about the formation of financial bubbles, it seems that no one is willing to stop this road yet, continuing to buy shares of companies.
As for the currency market, the ICE dollar index has been consolidating in a narrow range of 91.85-92.40 points for almost a whole month. On one hand, its growth is held back by incomprehensible messages about the prospects of the Fed's monetary policy and a noticeable decline in government bond yields, but on the other hand, its course is supported by waves of fears coming to the market that these changes are not far off.
Assessing the current situation, it can be said that the current dynamics in the markets will continue this week.
Important economic data will be released this week, which will most likely restrain the growth of demand for risky assets due to its weaker indicators. Among the interesting values, we will highlight the publication of the producer price index and consumer inflation in the United States. It is assumed that production inflation will show a slowdown in the growth rate in June to 0.5% from the May value of 0.8%, and the increase in consumer inflation will slow down to 0.4% in June from 0.7% in May.
We believe that this will be perceived positively by the market. This may be a signal that the Fed's forecast of a temporary surge in US inflation is coming true, which means that one should not expect sharp changes in monetary policy from the regulator. But if the data show growth above expectations, we should expect an increase in demand for company shares and a weakening of the US dollar by the end of the week.
In addition, the speech of Fed Chairman J. Powell to Congress on Wednesday and Thursday may have an additional impact on the markets.
Forecast of the day:
The EUR/USD pair is trading below the level of 1.1880. Any positive news regarding the slowdown in the US inflationary pressures will push the pair back to 1.1965.
Just like in the case of the EUR/USD, the XAU/USD pair is above the support level of 1797.00. We expect gold's price to further rise on the wave of lower inflationary pressures in the US, which will reduce the prospects for an earlier start of the Fed's monetary policy tightening. We believe that it will rise to the level of 1821.00, and then to 1837.00.
