Optimism didn’t last long yesterday, and the market mood turned rapidly sour, as energy prices rebounded with the escalation of tensions in Ukraine. UAE Energy Minister said yesterday that they are pumping near maximum capacity and unrest in Libya and Ecuador hint at further tighter supply. US crude trades past the $112 level this morning, and firmer oil keeps the concerns of high inflation tight, again.

In the FX, the EURUSD tests the 50-DMA to the upside, as hawks prepare for hawkish comments from Christine Lagarde this week. The BoJ, on the other hand, boosts JGB purchases to defend its yield curve strategy, but how long can it do so?

In individual stocks, tech stocks remain under a decent selling pressure as earnings, which will be released by end of the month come in investors’ focus. Bank stocks boost dividend amid successful stress tests to stop selloff, while Nike losts 3% after market despite beating earnings and sales expectations.

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Asian stocks kicked off the week on a bullish note to catch up with the American session gains on Friday. Softening oil and commodity prices, combined with the softening University of Michigan expectations on five-year inflation survey, and quarterly rebalancing of portfolios explained gains.

BUT, the size of the rebound remains worrying, the market volatility remains high, and the gains may not last long.

Russia bombed Kiev this weekend, as a sign of a renewed escalation in the Ukraine war. G7 leaders hinted at more sanctions against Russia. News of further escalation between Russia and the West is pushing oil prices higher this morning.

Investor attention will slowly start shifting to the second quarter earnings to give a better idea on how the Fed tightening and the persistent inflation impacted the company earnings in the latest quarter.

Nike and Micron will be in focus this week, as US banks are due to release earnings in about two weeks.

Sentiment is better, but the news is not. The latest flash PMI readings from Japan to Europe and to the US showed a slowing global activity in June.

The slowing activity, and the call for a global recession started pressuring oil and commodity prices to the downside.

Norway delivered a bigger than expected 50bp hike, and Banxico rose by 75bp hike, the country’s biggest rate hike ever.

Plus, Moscow cuts the gas supply to Germany via Nord Stream 1, leading to another spike in the European natural gas futures.

The higher gas prices should keep the pressure high for oil, as although the prospects of demand are being cut, the production remains limited to the refining capacity.

European and US futures hint at a hopefully calm session before the weekly closing bell, and we don’t have much on today’s economic calendar.

In the FX, the US dollar hasn’t recorded a fresh high since about ten days, and the prospects of slowing US growth, the rising probability of recession, and the hawkish tone from other major central banks should prevent the greenback from gaining a fresh positive momentum.

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Market optimism couldn’t survive to Jerome Powell’s testimony yesterday, as he said that a recession is possible, and that calling a soft landing is ‘very challenging’ under the current circumstances.

Major US indices closed the session slightly in the negative. Powell will testify today, as well, but most of the negative pricing is certainly done by now.

In commodities, the barrel of American crude extended losses below $103 yesterday, BP fell and iShares Diversified Commodity index fell below the 100-DMA for the first time this year, and deeper decline is possible, given the risks of tighter monetary policies to the global economy.

The British FTSE index, which has a high concentration of oil and mining stocks lose its advance versus its US peers.

Regarding the individual stocks, Altria lost near 10% on news that Juul’s e-cigarettes could be banned, and Alibaba gained on news that Ant Group will apply for a key financial license as soon as this month, and the People’s Bank of China could accept it.

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US equity markets kicked off the short trading week with a bang. But gains may not last as the Jerome Powell’s semiannual testimony could turn the market mood sour again as the Fed Chief is expected to reiterate his strong commitment to fighting inflation even if it means slower economy and a softer jobs market.

The calm reins in the FX markets, with the dollar index pushing higher this morning, as the markets prepare for some hawkish comments from the Federal Reserve (Fed) Chair Jerome Powell today.

Gold is down for the fourth day, and Bitcoin struggles to extend gains into $22K mark.

Crude oil fell to $106 per barrel this morning, as iShares Diversified Commodity index broke the 50-DMA significantly for the first time this year. Energy and commodities’ effectiveness in hedging the rising inflation may be easing, as a global recession would hit demand, and let the energy sector retrace a part of last year’s rally.

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The week started on a calm note, with small gains in European indices and US futures.

The selloff in cryptocurrencies slowed, crude oil consolidated above the $110 per barrel and gold remained offered as the improved risk appetite, and the prospects of higher US yields weighed on appetite.

The currency markets were calm as well, with the US dollar giving back some field against most majors. The EURUSD consolidated above the 1.05 level. The spread between the Italian and German 10-year yields narrowed since the ECB announced that they will invent another financial instrument to deal with the diverging pace of rising yields between the core and the periphery.

In France, Macron lost majority in the National Assembly in the latest legislative elections of the weekend. It’s something rare in France, and it will force the French to find compromise to make new laws, which is a situation they are not used to, and they don’t like.

Elsewhere, Cable was bid above 1.22 as Brits are holding their breath before tomorrow’s inflation data, and the Aussie-dollar approached the 70 cents mark post-RBA minutes.

We have certainly a couple of more hours of calm in the markets. But the things will start getting serious with Jerome Powell’s semi-annual testimony due Wednesday and Thursday, where he will reiterate how strong the Fed is committed to fighting the soaring inflation in the US.

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A massive selloff hit the sector on Saturday and sent the price of Bitcoin below the $18K mark, the lowest level since the end of 2020. Ethereum fell below $900, as smaller cryptocurrencies followed their major peers to the south.

Sunday saw a rebound as some dip buyers piled in on belief that Bitcoin may have cheapened enough to catch an interesting dip.

In traditional markets, US equities saw some relief at the end of a heavily stressful trading week. The US dollar index is softer, gold consolidates and crude oil is down. Investor sentiment remains tense as ECB Chief Lagarde and Fed Chair Powell testify this week, and there will be a lot of inflation talk on the menu!

The Swiss National Bank surprised with a 50bp hike at yesterday’s monetary policy meeting and sent an important message to the market: the SNB is now shifting its focus to fight inflation, and partially abandon its battle to soften the Swiss franc. The franc soared raising the question of whether the Swiss franc is again a good candidate for safe haven appreciation.

Elsewhere, stock markets were battered on Thursday, as the soft US data in the wake of a 75bp hike from the Federal Reserve (Fed) fueled the recession fears and triggered a heavy risk selloff.

The barrel of US rebounded aggressively after hitting the $112 per barrel yesterday, as the oil bulls came back with a revenge, and the dollar weakness didn’t last long. This morning, the USD is firmer against major, and a further downside correction may not be on the cards in the short run.

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Equities jumped after the Federal Reserve (Fed) raised rates by 75bp yesterday. The US yields eased as the Fed hawks scaled back their expectations to a softer reality, and the US dollar index came down from a fresh two-decade high. The futures were in positive at the time of shooting and are already in the negative as a confirmation that the post-Fed optimism will not last long, as the economic picture and the Fed news are, in fact, less than ideal.

We will likely continue seeing choppy market conditions. One good news is the softening oil prices, as investors price a higher chance of recession, which would curb oil demand and ease prices.

The aggressive hawkish shift in Fed policy, the rising US rates and the soaring US dollar are not a gift for the other central banks.

The European Central Bank had an emergency meeting yesterday, to discuss how to slow the soaring bond yields after they announced the end of the asset purchases program last week, but more importantly how to prevent the peripheral yields from soaring faster than the core yields.

We watch two other monetary policy meetings today, the Bank of England (BoE) and the Swiss National Bank (SNB). The BoE is set to raise the bank rate for the 5th straight meeting, while the SNB has no reason to hurry to the exit.

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The Federal Reserve (Fed) will announce its latest rate decision today, but most of the wild ride is certainly done by now; the market fully prices in a 75bp hike at today’s decision.

The aggressive rise in hawkish Fed expectations pushed the US 2-year yield to 3.45% on Tuesday. The 10-year yield flirted with 3.50%. The S&P500 lost another 0.38%, while Nasdaq eked out a small 0.20% gain, but after hitting a fresh low since November 2020.

The US futures are in the positive this morning, but the market will likely remain tense until the Fed breaks the news that it hikes by 75bp. The updated economic projections and the dot plot have an important weight for future expectations.

Bigger rate hikes from the Fed, and the soaring US dollar are certainly not a gift for other central banks. The US dollar is a base currency, and the rapid appreciation in the greenback increases the cost of the goods that the other countries negotiate in terms of US dollars on international markets, starting from oil and commodities. As a result, a stronger US dollar is a bigger inflation threat for the world.

This is why, the hawkish Fed expectations have a bigger domino effect power on the rest of the world. The German 10-year yield continues pushing higher, and the EURUSD sees a decent support near the 1.04 threshold after the European Central Bank (ECB) announced an unscheduled meeting to discuss the market turmoil.

Cable slipped below the 1.20 mark, and a 25bp hike from the Bank of England (BoE) may not suffice to compensate the hawkish Fed, and the renewed Brexit fears.