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MTrading Team • 2022-05-26

Global markets lose Fed Minutes-inspired optimism as Russia, China renew recession fears

Global markets lose Fed Minutes-inspired optimism as Russia, China renew recession fears

An intermediate relief to sentiment, mainly due to the FOMC Minutes and softer US data, couldn’t last long as bears cheer the growing odds of the global recession. China and Russia provide a double whammy to bolster pessimism while recently downbeat statistics from the US play their roles to propel the flight to safety.

The risk-off mood allows the US dollar to keep the previous day’s bounce off monthly low, despite the recently sluggish performance, which in turn weighs on the commodities and Antipodeans.

Brent oil rises for the sixth consecutive day as supply crunch fears jostle with tensions surrounding the future energy demand. Gold prices, on the other hand, fail to cheer the safe-haven allure and join Asia/Europe equities to weigh on risk barometers like AUDUSD.

Bitcoin remains mostly stable but the Ethereum remains pressured as traders seek fresh clues to overcome the pessimism.

Following is the list of major assets’ latest performances:

  • Brent oil prints six-day uptrend near $115.00, up 0.30% intraday.
  • Gold extends the previous day’s losses below $1,850, down 0.35% of late.
  • USD Index regains upside momentum near 102.00, keeping the bounce off monthly low.
  • FTSE 100, DAX and EUROSTOXX50 are all printing mild gains during the initial hour.
  • Dow Jones and S&P 500 rose 0.60% and 0.95% respectively while Nasdaq rose 1.51% amid an optimistic US session on Wednesday.
  • BTCUSD remains lackluster at around $29,600 but ETHUSD drops for the second consecutive day, down 1.40% near $1,910 at the latest.
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No entry for optimists

After an ephemeral positivity in the markets, mainly during the US session, the traders again ran the short scripts amid issues at stake than the FOMC Minutes. The US Fed policymakers’ doubts over 50 bps rate-hikes past September couldn’t smash softer US Durable Goods Orders but couldn’t choke the Wall Street buyers, although bears returned to the table on Thursday.

No end to the Russia-Ukraine war and surprise ruble strength put the Russian central bank towards an emergency rate cut of 300bps. The same pushes CBRT (Turkish central bank) to think of ways to defend the lira after December’s rebound got reversed so far in 2022.

China’s lockdown and the latest tussles with the US, be it on trade or concerning Taiwan, adds to an extra burden on the markets.

Hence, more factors were added that justified fears of global recession, which in turn favored the US dollar to stabilize and weigh on commodities, mainly gold. Brent oil, however, managed to remain firmer as the Russian energy minister expects a reduction in global output going forward.

BTCUSD and ETHUSD couldn’t save themselves, despite the Bitcoin’s corrective pullback, as regulatory concerns join the risk-off mood.

⏫ 🟢 Strong buy: USDCAD, USDRUB and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, brent oil, gold, ETHUSD, BTCUSD

Second-tier data eyed ahead of Fed’s preferred inflation gauge

While the risk catalysts are likely to play their roles and underpin the US dollar’s safe-haven demand, the second readings of the US Q1 2022 GDP and PCE data could entertain traders. Also important to watch is the CBRT moves and any updates on Russia’s bond payment as some bondholders expect debt default earlier.

It’s worth noting, however, that Friday’s Core Personal Consumption Expenditure (PCE) Index, the Fed’s preferred inflation gauge, becomes the key for traders to watch.

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