European and Asian Stock Markets Decline, Dollar Weakens, Oil Prices Drop

• Fed wants to ensure that inflation continues to weaken before it begins to lower interest rates
• European and Asian stocks fell and lost part of last week’s gains, under pressure from the technology sector
• The value of the dollar against a basket of currencies sharply declined last week, while the euro strengthened
• The Japanese currency strengthened due to signals regarding the abolition of negative interest rates

On global markets, oil prices fell last week as central banks are not expected to lower interest rates as quickly as anticipated, leading traders to fear further slowing of economic growth and thus demand for ‘black gold’.

On the London market, the price of a barrel fell 1.8 percent last week to $82.08, while on the American market, a barrel dropped 2.5 percent to $78.01.

Thus, prices lost a significant portion of the gains from the previous week, with monetary policy being the focus of traders.

In a report to Congress on the economic situation, the chairman of the U.S. Federal Reserve Jerome Powell stated that Fed leaders want to ensure that inflation continues to weaken towards the targeted level of two percent before deciding to lower interest rates.

Powell’s comments solidified market estimates that the Fed could begin lowering rates in June, later than expected.

This means that further slowing of growth in the world’s largest economy, as well as consumption, can be expected, and thus demand for oil should not increase either.

The leaders of the European Central Bank, on the other hand, left interest rates unchanged at record high levels during their meeting on Thursday, as expected. However, they signaled that they could begin lowering rates in June.

A more significant drop in oil prices was prevented by better-than-expected data on Chinese international trade, which raised hopes that the recovery of the world’s second-largest economy is accelerating.

Primarily due to geopolitical tensions in the Middle East, since the beginning of the year, the price of oil on the London market has risen nearly seven percent, and on the American market nearly eight percent, after falling about ten percent last year.

Asian and European Stock Markets Decline

On European stock markets on Monday morning, stock prices fell, losing part of last week’s gains, with the technology sector under the most pressure.

STOXX 600 index of leading European stocks was down 0.4 percent at 9:30 AM, following last week’s growth.

Meanwhile, the London FTSE index strengthened 0.07 percent to 7,665 points, while the Frankfurt DAX slid 0.59 percent to 17,710 points, and the Paris CAC dropped 0.28 percent to 8,005 points.

In this context, stock prices in the technology sector fell the most, by more than two percent, similar to Wall Street on Friday.

On most Asian stock markets, stock prices also fell. The MSCI Asia-Pacific index, excluding Japan, was down 0.15 percent at 9:30 AM, after reaching an eight-month high on Friday.

This morning, the Nikkei index on the Tokyo Stock Exchange plummeted 2.2 percent, while stock prices in South Korea and Australia fell between 0.8 and 1.5 percent. In Shanghai and Hong Kong, however, they rose between 0.7 and 1.4 percent.

The rise in Chinese stock indices is attributed to the data showing that inflation in China rose to 0.7 percent in February, which raised hopes for an acceleration in the recovery of the world’s second-largest economy.

However, trading remains cautious as producer prices are still in the deflationary zone.

In Japan, the Nikkei index sharply fell from record levels as it became increasingly clear that the central bank would soon abolish negative interest rates and begin to normalize monetary policy, after years of conducting an extremely accommodative monetary policy.

Investors were not encouraged by the revised data, which showed that Japan’s economy grew 0.4 percent in the last quarter of last year, rather than contracting as previously estimated, indicating that the world’s fourth-largest economy avoided recession.

Other Asian markets followed Wall Street’s decline on Friday, causing all major indices – Dow Jones, S&P 500, and Nasdaq – to end the week in the red.

This was mainly due to the drop in stock prices in the technology sector, particularly among chip manufacturers, after strong growth in previous weeks.

Sharp Decline of the Dollar

On the currency markets, the value of the dollar against a basket of currencies sharply fell last week, while the euro strengthened following messages from the U.S. and European central banks that they could soon begin to lower interest rates.

The dollar index, which shows the value of the U.S. dollar against six major world currencies, fell 1.1 percent last week to 102.74 points.

At the same time, the value of the dollar against the European currency fell 0.9 percent, bringing the price of the euro to $1.0940.

The dollar also weakened against the Japanese currency by 2.1 percent, with its exchange rate sliding to 147.05 yen.

Last week, the focus of investors was on the report from Fed Chairman Jerome Powell to Congress regarding the economic situation.

As previously mentioned, he stated that central bank leaders want to ensure that inflation continues to weaken towards the targeted level of two percent before deciding to lower interest rates, and that this decision is approaching.

Powell’s comments solidified market estimates that the Fed could begin lowering rates in June.

Although it is expected that the European Central Bank will also begin lowering rates soon, the euro strengthened against the U.S. dollar last week.

During the meeting on Thursday, the leaders of the European Central Bank left interest rates unchanged at record high levels, as expected, but signaled that they could begin lowering rates in June.

The Japanese currency strengthened the most against the dollar last week.

This is due to signals from the Japanese central bank that it could soon abolish negative interest rates and begin the normalization of monetary policy, after years of conducting an extremely accommodative policy.