Spreadex Market Update
Fed Expected to Hold Rates as S&P 500 Hits New High
The S&P 500 reached its highest point since early 2022 as traders anticipate the Federal Reserve to refrain from raising interest rates, driven by lower inflation forecasts. Today's key factors include the continuation of the risk rally, concerns among investors regarding its sustainability, a decline in WTI prices, a warning from a Bank of England (BOE) official about potential rate hikes, and a cut in China's central bank's reverse repo rate (RRR) to support the economy.
The Big News
Analysts at Goldman Sachs and Citi have revised their outlook for crude oil prices this year, reducing the price target to $86/bbl from the previous $95/bbl. The downward revision is attributed to increased oil supply from Russia, Iran, and Venezuela. Iran's President Raisi's visit to Venezuela has sparked speculation, but an Iranian official denied ongoing negotiations on increasing oil production. As a result, WTI prices fell to an early-May low of $66.85/bbl, breaking below the $70/bbl level. Further downside pressure could expose prices to $63.50/bbl, unless bulls manage to regain control above $68.70/bbl.
In the UK, a Bank of England (BOE) official, Johnathan Haskel, expressed concerns about persistent inflation risks and warned that further rate hikes should not be ruled out. This comes ahead of BOE board nominee Megan Greene's testimony before the UK Parliament, as she prepares to replace noted dove Silvan Tenreyro. BOE's Catherine Mann refrained from commenting on the extent of rate increases in the current cycle, stating that it would be challenging for the central bank to communicate when hiking would conclude. Consequently, the British pound faced downward pressure on Monday, losing 0.55% against the US dollar, failing to breach the $1.26 level and finding support at $1.2445.
In China, the People's Bank of China (PBOC) cut the seven-day reverse repo rate (RRR) by ten basis points to 1.9%, marking the first cut since mid-last year. Speculation had been circulating regarding the PBOC's easing of lending conditions to support the Chinese economy. Consequently, the USDCNY pair rose to a seven-month high of 7.18, with the next resistance level at 7.25 and short-term support at 7.15.
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