Interest rates and geopolitics in the spotlight of investors
Traders are increasingly leaning towards expectations that the Fed will raise interest rates by 25 basis points by September. Currently, the probability of maintaining the rate at 3.50-3.75% is 61.5%, while the chances of an increase to 3.75-4.00% have risen to 38.5%. This reflects investors' concerns about potential tightening of monetary policy in response to persistent inflation. The Fed's decisions have a significant impact on global financial markets, determining the cost of capital and affecting asset valuations. The current market sentiment, described as 'fear' at a level of 37/100, indicates uncertainty among investors.
An agreement to establish a ceasefire between Israel and Hezbollah, which is set to take effect on Friday at 16:00 (Warsaw time), may bring temporary relief to the region. The USA is actively engaging in diplomatic efforts, informing Iran that Israel does not plan to escalate attacks in Lebanon. A reduction in tensions in this area could provide relief to markets that are sensitive to any geopolitical upheavals that may affect oil prices and other key assets.
Retail sales in the United Kingdom surprised positively, achieving a growth of 3.2% year on year, compared to the forecasted 1.8%. Data excluding food also turned out to be better than expected, indicating a month-on-month increase of 1.2%. These data may suggest that consumption in the United Kingdom is returning to a growth path after a period of stagnation. In Canada, retail sales increased by 0.5% month on month, which was slightly below expectations of 0.6%. Nevertheless, stable data from Canada may support its monetary policy and do not prompt immediate changes in interest rates.
Japanese CPI excluding food and energy was 1.4% year on year, which is in line with forecasts. The stability of inflation in Japan may be a signal that the Bank of Japan will not be forced to make rapid changes to its monetary policy. The stagnation of inflation at this level suggests that Japan may continue to pursue a low interest rate policy, which affects the value of the yen and international capital flows.
Tomorrow's events will be dominated by expectations for further decisions from the Fed and the development of the geopolitical situation in the Middle East. Investors should pay attention to any new information regarding monetary policy in the USA and potential changes in the situation in the Middle East that may impact commodity prices and market stability.
