The US stock market will not recover this year

High inflation, volatility in stock and commodity markets, and the war in Ukraine have become major risks to the US financial system, the Federal Reserve said in its Financial Stability Report on Monday. Rapidly rising US Treasury bond yields, war-related problems in oil markets, and other factors have already strained parts of the financial system.

Fed spokesman Bostic sees 2-3 interest rate hikes of 50 basis points in future meetings. On Monday, Minneapolis Federal Reserve President Neel Kashkari said that he was confident that inflation would return to normal, but it would take longer. Kashkari has always advocated lower rates and soft monetary policy, but he voted for two hikes this year because it is necessary to control price increases. However, he noted that the burden of tightening policy would fall on those at the lower end of the wage spectrum, that is, the poor. Financial analysts are already estimating the probability of a 75 basis point interest rate hike at the Fed’s upcoming June 14-15 meeting at 79% (yesterday it was 75%).

US President Joe Biden has signed a law on a lend-lease bill for Ukraine. Last week, the US House of Representatives approved a lend-lease bill that would allow a more efficient supply of weapons, ammunition, and equipment to Ukraine.

On Monday, crude oil prices fell by 6% as the dollar hit a 20-year high amid fears over a US interest rate hike, hitting the value of commodities priced in currencies and other risky assets. The OPEC+ Alliance of Oil Exporters agreed at its monthly meeting to increase nominal production by 432,000 barrels a day, but it’s well below the projected summer oil demand. Analysts note that oil prices are falling fast as fears of lower crude demand grow, given the COVID situation in China.

Asian markets traded closed in the red zone yesterday. Japan’s Nikkei 225 (JP225) decreased by 2.53%, Hong Kong’s Hang Seng (HK50) fell by 3.81%, and Australia’s S&P/ASX 200 (AU200) lost 1.18%. The Chinese yuan has reached an 18-month low against the dollar as the Covid lockdown in Beijing slows down the economy, with US bond yields rising. China’s central bank is trying to slow the yuan’s fall, as it set the benchmark exchange rate above expectations for the fifth day in a row on Monday. Last month, the People’s Bank of China also cut its foreign-currency reserve requirement rate to boost the dollar supply and boost the yuan. But these actions are not enough to stop the depreciation as the dollar index strengthens steadily. Hong Kong’s Hang Seng Index has fallen for the fifth session. The sharp decline follows a global sell-off and also because China has imposed tough lockdowns that are hurting business, and there are growing signs that this damage will spread to the global economy.