Risk aversion looms in the market, the dollar index tumbles

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Spot gold hit a nearly two-week high of $1,865.33 an ounce, as the U.S. dollar index tumbled nearly 1% to a one-month low of 102.076, as investors expressed concern over whether the Federal Reserve could guide the U.S. economy to a so-called soft landing, and profit margins at some large companies were affected. The shock is seen as a worrying potential harbinger of the future.

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The U.S. dollar index has soared this year, and this month hit a new high of nearly 20 years to the 105 mark. However, the market’s expectations for aggressive interest rate hikes by the Federal Reserve have been basically digested. In the short term, the downward correction trend of the U.S. dollar may further expand, and further rises may be more difficult. U.S. inflation rose more than 8 percent year-on-year in April, not far from a more than 40-year high of 8.5 percent in March. The Fed is expected to continue the May policy meeting rhythm at its June and July policy meetings - continuing to raise interest rates by 50 basis points each, but the U.S. economy unexpectedly contracted 1.4% in the first quarter, which sparked investors' questions about the Fed's ability to guide the U.S. economy. Fears of achieving a so-called soft landing.

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Peak driving season in the U.S. traditionally begins on Memorial Day in late May and ends on Labor Day in September. Despite concerns that soaring fuel prices could dent demand, mobile data from TomTom and Google have climbed in recent weeks, showing more and more people are driving across the U.S.

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According to customs data, China imported 6.55 million tons of Russian crude oil in April, the highest level in nearly three months. Meanwhile, crude oil imports from Saudi Arabia rose to 8.93 million tonnes, close to the highest level in May 2020. Imports from major importing countries Oman, Malaysia, Angola, Brazil and Kuwait all increased month-on-month, and no imports of Iranian crude oil were reported. India's state oil company Hindustan Petroleum Corp said it will continue to purchase Russian crude in the future if the economy is right.

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The euro zone economy faces huge supply challenges, but demand in the U.S. economy will be weighed down by a Fed so active that the U.S. economy could slip into recession in 2023. Dr. Joerg Kraemer, chief economist at Commerzbank, said: “In the US, a rapid rise in key interest rates could dampen demand and trigger a recession. In contrast, demand in Germany and the euro area has not been driven by a hesitant ECB approach. Very likely to be a problem."

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The world's most closely watched stock indexes are set for a new round of losses as concerns over economic growth heat up and the Federal Reserve embarks on its most aggressive policy tightening journey in decades. The Federal Reserve’s hawkish policy stance at all costs, sluggish supply chains and growing threats to the business cycle are all undermining investor confidence in U.S. corporate profitability, while stock valuations continue to decline. After the S&P 500 posted its longest weekly losing streak in more than 20 years, just 4% of respondents believe the index has reached its bottom for the year based on closing levels. A few even believed that there would be a historic plunge, falling to 2240 points, re-testing the low point of the epidemic.

Goldman Sachs said in the report that although the yen may still face more weakening pressure against the dollar in the short term, there are many signs that the yen is about to recover. USD/JPY bulls may face the risk of official intervention in currency markets. There are multiple paths for the yen to recover - weakness in the U.S. economy and/or upward pressure on Japanese interest rates, with limited scope for further sustained depreciation. Buy 6-month USD/JPY digital put options with a strike price of 115 at roughly 9%, to prepare for a further decline in U.S. growth momentum in the coming months. The factors driving the yen's weakness are "changing", with the yen exhibiting "attractive asymmetries".

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Asking prices in the UK surged again in May as a lack of new homes entered the market rather than strong demand. Demand looks set to fade as the cost of living crisis intensifies. Asking prices for homes sold between mid-April and mid-May rose 2.1%, the largest May gain since 2014. The previous month was up 1.6%. Home asking prices rose 10.2% in May from a year earlier. The survey is not seasonally adjusted. Although the UK phased out temporary tax relief for property purchases in the second half of 2021, the UK property market maintained most of its momentum in the first half of 2022. But with high inflation and tax hikes squeezing household budgets, there are doubts that the housing market can maintain its recent strength - although there are few signs of a slowdown in price growth.