Weekly Market Review & Analysis For July 4, 2022

While the market(s) attempt to determine the direction of the general economy, certain types of assets feel the changes in expectations more than other asset classes. The Fed seems to be successful in substituting inflation worries with fears of recession, causing expected energy prices and Fed fund rates to fall.

The robustness of the U.S. dollar market and the decline in the prices of commodities have many people thinking that inflation could be in a downward spiral and that we're on a descending trend. In the FOMC minutes of its June meeting, published on Wednesday, the Fed repeated its determination to combat inflation, even at the expense of economic growth. The Fed's participants believed "the return to 2% inflation as critical to achieving maximum employment on a sustained basis."

A 75 or 50 basis points lift is possible for July. However, as crude oil prices have come down from the record highs of June and copper (a vital market indicator) continues its downward slide, it seems that the Fed has found a bit of breathing space. There are not many areas in the market that are zooming higher. The report noted a slowing in consumer consumption and companies being cautious about investing because of rising costs. 

As per the Atlanta Fed Tracker, GDP is expected to shrink by 2.1 percent in the 2nd quarter. This would be a superficial technical recession following the Q1 drop of 1.6 percent. The Special Military Operation in Ukraine, ongoing supply chain problems and China's Covid lockdowns were mentioned as a basis of concern.

In this regard, trading in the futures market is pricing rate cuts that could be announced as early as next year. The 10-year U.S. Treasury rates are down from their highs in June. The Fed will look for numbers to show that this economic slowdown is also causing cooling inflation prices, proving their policy's effectiveness.

The U.S. Dollar Index rose almost 1.8 percent in the past week's market, reaching levels never seen in front October 2002. Most of the gains were at the Eurodollar downfall, despite constant concerns about the effects of the rising energy cost on Europe's economy forefront.

In a volatile market environment, the silver and gold futures have continued to slide in dollar terms throughout the week. Gold fell $69 from the close on Friday to finish the week at $1742, while silver fell 58 cents to close at $19.29. The volume of gold in the Comex Gold contract was very high, but in silver, it was less.