Investors Take Profits From Last Week's Uptrends
31 May 2022
Sentiment deteriorated Tuesday as investors decided to take some profits from the recent rallies in risk assets.
Thus, US equity indices traded circa 1% lower, and EU bourses also opened weaker.
In the FX market, the USD tried to erase some of its recent losses and pushed mildly higher, while US yields have turned higher this week.
Problems in Europe
EU members are currently debating the sixth package of Russian sanctions, with rumors circulating that an announcement might be made this week. This package would not include a ban on oil imports via pipelines.
German inflation rose to a new all-time high on Monday, while Spain's figures were again above expectations. Today, economists forecast the eurozone's consumer price index to touch another record high of 7.7% in May, up from 7.4% in April, according to the latest inflation flash estimate.
This news comes just over a week before the European Central Bank meets to declare the end of large-scale asset purchases and reaffirm plans to increase interest rates for the first time in more than a decade in July.
Last week, ECB President Christine Lagarde stated that the central bank's deposit rate will begin to climb in July, and a significant increase in Eurozone CPI might bolster the case for a large interest rate hike.
On the other hand, several ECB members have already downplayed a 50 bps rate hike, reiterating market players they want to be as slow as possible. Nevertheless, as the USD had weakened broadly, the EURUSD pair has managed to push toward the key resistance at 1.08.
Rising home prices and falling demand
Standard & Poor's will release the next monthly update to its Case-Shiller National Home Price Index later today, which measures home price improvements in March. Following a 20.2% gain in February, the 20-City Composite Index is expected to reach a new all-time high of 20.5% year-over-year.
Lower demand typically goes hand in hand with rising housing prices. Rising mortgage rates and a lack of affordability are deterring new house buyers, causing the housing market to slump. In April, both new and pending house sales fell significantly, with new home sales reaching their lowest level since April 2020.