Interest rate hikes, Russia’s impact on oil and natural gas dominated markets this week

US stock markets rebounded strongly after the Fed Reserve, as expected delivered its first 50bp hike since May 2000 and announced the start of balance sheet reduction in June.

The ASX200 remained under pressure as the damaging COVID-19 lockdown in China lowers the demand for Australian commodity exports and our resource stocks.

Here is a review of the top five things that happened in markets this week:

1. Fed raises rate but pushes back on expectations of a more aggressive rate hike cycle

The Fed, as widely expected, delivered its first 50bp hike since May 2000, raising rates to a range of 0.75-1 per cent and announced the start of balance sheet reduction in June. The Fed pre-signalled its intent to hike rates by 50bp at future meetings but pushed back on expectations of larger hikes saying, “a 75-basis point increase is not something the committee is actively considering,”

2. RBA raises interest rates for the first time since 2010

For the first time since November 2010, the RBA raised interest rates this week from a record low of 0.1 per cent to 0.35 per cent to tame rising inflation. This week’s rate hike is expected to be the first in a cycle of interest rate hikes that takes the cash rate to 1.5 per cent by year-end.

3. EU unveils a plan to ban Russian oil imports

The EU announced a phased embargo on Russian oil imports. All 27 EU member states must ratify the proposal, will see the Russian supply of crude oil phased out within six months and crude products by the end of the year. Crude oil rallied after the announcement to above $108.00 p/b.

4. A breath of fresh air for Bitcoin

Bitcoin rallied above $40,000, supported by the tailwinds of a strong rebound in U.S equity markets following the FOMC meeting. The correlation between Bitcoin and US equities is at historical highs. What this means is where US equities go, Bitcoin will follow.

5. Natural gas soars

Natural gas futures rallied 16 per cent this week to their highest level in 14 years, as the fallout from Russia’s decision last week to cut off natural gas supplies to Poland and Bulgaria roils energy markets. In agriculture, it increases the price of fertilisers used on food crops globally.

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All trading carries risk. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
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