Week in a Glance: Fed Hit, China, Witching Day

21. Juni 2021

The past week was quite busy for the financial markets, both in terms of news and in terms of price movements. The main event that may well determine the architecture of price movements for months ahead is the announcement of the results of the meeting of the Federal Reserve Committee on Open Market Operations.

Markets were expecting assurances from the Central Bank that monetary policy will remain unchanged despite the sharp rise in US inflation. The Fed not only raised its inflation forecast, but also indicated that the rate hike could occur as early as 2023 (before that, it was announced in March that the rate increase would not be observed until at least 2024).

Note that in this new reality, the dollar has a good chance of medium-term gains, especially against the British pound, which has climbed exceptionally high against the dollar. In addition, the US stock market bubble could begin to collapse. This is supported by their dynamics on "witching day", which ended the past week.

On the third Friday of March, June, September and December, futures and options on stock indices, options and stock futures expire simultaneously, which usually increases volatility (traders randomly close positions, as a result of which trading volumes and market volatility can increase by one and a half to two times). Since 1990, the S&P 500 has lost an average of 3.1% during such weeks, according to BMO Capital. Well, the past week and "witching day" were no exception: the US stock market closed the week extremely depressively.

Another candidate for selling due to a price bubble, albeit not of the same magnitude as in the US stock market, is raw materials. Wood has already lost over 40%, the next in line are other raw materials. Chances of falling prices are high because China is very unhappy with current commodity prices. China has ordered state-owned enterprises to limit their presence in overseas product markets. But most importantly, the authorities also announced that they would soon dump zinc, copper and aluminum from secret national reserves on the market. After this announcement, copper prices fell by 10%.