Falling Oil Prices and Rising Dollar Value in Financial Market
The stock market saw lower stock prices and increased treasury yields, while oil prices fell and the dollar value rose. The decrease in stock prices may have been because of concerns about the termination of China’s COVID policy, leading to an increase in cases worldwide and ongoing concerns about demand for tech shares.
The increase in treasury yields may be due to an increase in interest rates or an increase in the perceived risk of default by the government, while the fall in oil prices may be because of a significant decrease in demand or an increase in supply. The rise in the dollar value may be due to increased demand for the currency or decreased value of other currencies.
The sentiment in financial markets has worsened due to concerns about the spread of COVID-19. The Italian authority has announced plans to test the virus on all people entering the country from the country.
In addition, when a new strain of the virus emerges, officials may impose tougher travel restrictions on China. The US has also announced that it will require all air passengers from the Asian country to get a COVID-19 test up to 48 hours before departure.
These developments contribute to a decline in stock prices and an increase in Treasury yields, alongside a decline in global equities and an international bond index. The dollar’s value has risen, and the 10-year Treasury yield has increased to 3.79% from 1.51% in December last year.
This increase in interest rates may be due to the Federal Reserve’s efforts to control inflation. These developments may dampen hopes for a rally in the final week of trading in 2022 after a difficult year for financial markets.
Impact of Federal Reserve’s Tightening Policy on the US Housing Market
There are concerns about the impact of the Federal Reserve’s aggressive policies on the United States housing market, as data shows homes under contract sales dropped in November, almost setting a new low. In addition, borrowing costs have doubled since the beginning of 2022, leading to a decline in home sales and prices.
There are also concerns about inflation pressures and their impact on the global economy. As Hong Kong ends, some of its last major COVID-19 restrictions and China reopens, potentially adding to aggregate demand.
However, some analysts believe investors have become too pessimistic and that a go-slow or a brief recession could allow stocks to bounce back from mid-2023. Oil prices have also dropped due to low liquidity and the concerns about a ban by Russia on exports to buyers who observe a price limit.