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Equities falter as the Fed turns hawkish

Equities falter as the Fed turns hawkish

Headline this week:

The S&P 500 fell below the 4200 levels and closed about 1.9% lower on the week overall. Equity indices across the globe were flat to lower with the biggest catalyst coming from the Federal Reserve rate decision.

Market Updates:

The Monetary Policy Committee reiterated their view that the recent inflation spike would be transitory and if not, they had the adequate tools to deal with it. Expectations of the first rate hike were brought forward into 2022 now (from 2023 earlier), which implies a withdrawal of the crisis-era stimulus measures sooner rather than later. They have not provided any timeline for now though.

The US Dollar came alive last week too, after mostly trending lower this year. The gain of the broad dollar index against G10 currencies was almost 2% with strength feeding through against EM currencies as well. The US yield curve got flatter with the front end (2Y and 5Y) moving higher and the 10Y and 30Y closing broadly unchanged despite having a volatile week. Commodities were the other big casualty this week with metals leading the way - Gold lost 6%, Silver -7%, Platinum -9% and Palladium -10%. Copper was down 8% as well with grains following suit. Lumber futures, which have been on a tear this year owing to a buoyant US housing market, are now down 40% from their highs last month. The sole exception was Crude, which stayed bid as US-Iran negotiations failed to restart after the election in Iran concluded over the weekend.Last but not least, Bitcoin also lost about 6% on the week falling from levels above 40k to the 35k support for now. China continued its campaign against miners by imposing more restrictions at the local and provincial government level. The virus situation does look better than last week though with India registering a 2 month low in daily cases and deaths. The UK is delaying its reopening by about a month to step up its vaccination drive, following a surge in the delta variant cases recently. Ahead this week, we have the global PMI numbers, a rate decision from the Bank of England and the results of the Fed's latest stress tests.

By

Kristal Advisors

June 21, 2021

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