Dow Jones: Wall Street begins a turnaround

China and the Fed put pressure on Wall Street

Wall Street started the week on a negative note, with the main US indexes down more than 1%, punished by recent events in China and hawkish rhetoric from New York and St. Louis Fed offices.

Sentiment was punished from Sunday evening by the massive demonstrations in several major Chinese cities, including Hong Kong and Shanghai, in response to health restrictions, but the stock market indices are already trying to regain the height this morning after new rumors of a potential lifting of restrictions.

According to the latest rumors, Beijing will soon announce the end of the zero-covid policy, emphasizing the low mortality of new variants and the fact that the zero-covid policy has achieved historical success in protecting people’s lives. The National Health Commission has also just published a plan to speed up vaccinations for the elderly.

Risk aversion was reinforced on Monday by New York Fed President John Williams, who said interest rates should rise further and remain high through next year, and St. Louis, James Bullard, who indicated that the Fed “still has a ways to go to become restrictive” and that the policy rate must be raised to at least 5% to bring down inflation. Those statements raised fears of a longer tightening of Fed monetary policy, punishing equity markets and preventing the bond market from benefiting from renewed uncertainty about global growth.

Investors will continue to closely monitor developments in China, but focus will temporarily turn to Jerome Powell’s speech at the Brookings Institute on Wednesday, then to PCE inflation on Thursday. The Fed chairman could take advantage of this intervention to tighten the tone given the significant improvement in financial conditions in recent weeks.

Daily Dow Jones Price Chart (CFD Wall Street) – Key Levels


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