Falling commodity prices last week eased inflation fears

On Friday, Fed member Daly, the usual political dovish spokeswoman, indicated she supports a 75 basis point rate hike at the upcoming Fed meeting in July. At the same time, the indices have rallied substantially, suggesting that the 0.75% rate hike scenario at the next Fed meeting is probably already priced in. And since there is no new negativity, no new factors contribute to the decline. But analysts believe that inflation will not slow anytime soon, which means the Fed will raise rates more and move faster, putting downward pressure on the economy.

A significant factor last week was the drop in oil and commodity prices, which eased inflation fears and allowed stock markets to rebound. Falling commodity prices could help lower overall inflation, especially during the autumn months, which would reduce the need for aggressive monetary tightening.

The three-day forum will begin on Monday with the main topic “Challenges for monetary policy in a rapidly changing world.” The forum will conclude with speeches by the heads of the Fed, the ECB, and the Bank of England on Wednesday, so investors should keep a close eye on this event.

The second quarter is coming to a close. These six months have already been characterized by the fastest rate hike cycle in decades, market turmoil, and a war that has caused rising inflation. As investor expectations fluctuate between continued high inflation and an economic slowdown caused by hawkish central bank policies in major countries, few believe market volatility will subside anytime soon.

On Sunday, G7 leaders promised to raise $600 billion in private and government funds over five years to finance needed infrastructure in developing countries. Biden said the United States would raise $200 billion over five years in grants, federal funds, and private investment to support projects in low- and middle-income countries. It will help fight climate change as well as improve global health, gender equality, and digital infrastructure. Europe is mobilizing 300 billion euros for the initiative over the same period.

US President Joe Biden and other G7 leaders have agreed to announce a ban on new gold imports from Russia. It will be part of a new sanctions package to be announced Tuesday.

Asian markets traded higher last week. Japan’s Nikkei 225 (JP225) gained 1.28% over the week, Hong Kong’s Hang Seng (HK50) jumped by 3.68%, and Australia’s S&P/ASX 200 (AU200) was up +1.60%.

The People’s Bank of China, with the Bank for International Settlements and five other regulators, will create a yuan-denominated reserve pool to provide liquidity to member countries during periods of market volatility. China, along with Chile, Indonesia, Malaysia, Hong Kong, and Singapore, will contribute at least 15 billion yuan ($2.2 billion) or the equivalent in US dollars to the so-called “RMB liquidity agreement.” Participating central banks will not only be able to use their contributions if liquidity is needed but will also have access to additional financing through a secured liquidity window. The agreement marks a move by Beijing to internationalize China’s currency, challenging the global financial system dominated by the US dollar.

Over the weekend, Russia launched new missile strikes against Ukraine’s two largest cities, Kyiv and Kharkiv. Russia has stepped up its use of cruise missiles, mainly striking at targets in northwestern Ukraine from Belarus. The Kremlin is also seriously considering military action against Lithuania. Last week, Lithuania banned the rail transit of sanctioned goods through its territory to Russia’s Kaliningrad region.

Russia is one step away from default. The issue is the payment of about $100 million on government bonds. The grace period for this payment ended on Sunday, June 26.

At the commodities market the biggest gains over the week showed the futures on lumber (+5.54%) and palladium (+3.21%). Cotton (-17.25%), corn (-13%), soybeans (-10.4%), natural gas (-9.74%), wheat (-9.4%), copper (-6.84%), orange juice (-6.34%) and platinum (-2.8%) futures showed the biggest drops.