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Market’s Risk-Off Sentiment Resumes, Inflation in Focus

The market woke up to a new wave of risk-off sentiments on Thursday as the Bank of England’s efforts to restore normalcy were overshadowed by inflation fears and the news of an impending global recession. 

Dealing with the Government’s Tax Plan

The British Pound broke a two-day round of profit-taking and the bond yields increased while the Prime Minister spoke on the radio. The Bank of England’s plan to buy bonds actually controlled selling pressure for a while but currency traders were left to face the general market jitters due to the plan to cut taxes.

The US Dollar, on another hand, gained against its other counterparts in the G10 but Treasuries slipped as investors expect that the Federal Reserve will keep implementing its aggressive interest rate increases. Bond yields in Europe also rose while investors internalized the most recent information and comments from officials of the European Central Bank.

The S&P 500 index advanced by 2% and futures, as well as stocks, fell. The Hang Seng index in Hong Kong pulled back on Thursday and went toward its lowest level since its beginning. Retailers in Europe experienced a plunge as Next Plc and Hennes & Mauritz AB, but Porsche AG gained following the largest IPO seen in more than 10 years in Europe.

Citigroup’s Head of Asia-Pacific Market, Julia Raiskin, said there is pessimism in the markets and investors are getting to the sideline. She said that no other assets are selling constructively apart from the Dollar.

Central Banks’ Huge Burden

Investors are now having to deal with risks posed by discordant actions from different central banks over the past week as the Feds are determined to embark on more rate increments. The Bank of England launched a £65 billion plan to buy government debts while Asian authorities are pushing up weak currencies.

The Portfolio Manager at Kayne Anderson, Julie Biel, said that the BOE is in a difficult situation now. She spoke with Bloomberg during an interview that everyone is currently in a corner as the reactions and volatility unfold in the market.

Officials of the Federal Reserve keep emphasizing their hawkish position, Raphael Bostic, the President of the Atlanta Feds recently said he supports increasing the interest rates by another 1.25 points before the year ends to control the inflation rate since it has become worse.

EU officials launched new sanctions on Russia in response to the war in Ukraine. The new sanctions ban Russian oil sales by certain countries beyond a price. It is expected to cause an economic pain of $6.7 billion to Russia.  

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