Fed, China weigh on equity markets
US stocks declined as the bond market selloff continued as investors fret over aggressive monetary tightening by the Fed and as China continues to struggle with their latest Covid outbreak. Wall Street is worried that inflation will eventually destroy all the growth potential that was supposed to happen this year. Inflation may be peaking soon, but the war in Ukraine and now China’s growing lockdowns will continue to drive supply chain issues. Weakness in consumer spending is emerging and that is why many stock traders are entering de-risking mode. This is a tough environment to want to hold onto risk and that might remain the case until investors believe the Fed may not be as aggressive with tightening policy. The Fed has locked itself into delivering a couple massive rate hikes and the earliest they could flip-flop and ease up on tightening as growth concerns become a priority is the middle of the summer.
Bitcoin is under pressure as the bond market selloff resumed, prompting a widespread selling of risky assets. The Bitcoin 2022 conference was more of a party than a game-changing event that will spur the next round of massive investment into cryptos. Bitcoin is struggling here as rising rates are leading to a de-risking moment for many traders. With no momentum from the Bitcoin 2022 conference, the focus shifts to inflation and expectations are for a very hot report that will probably be the peak.
Nothing has changed for bitcoin’s fundamentals in the past week, but momentum selling could make things interesting if the USD 40,000 level breaks. Bitcoin should see strong support ahead of the USD 38,000 level.
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