Experts and analysts believe that global stock exchanges will continue to fluctuate, as a result of the repercussions of the US Federal Reserve's decisions on interest rates and with it the rest of the other global central banks, stressing at the same time that the emerging and oil-importing economies will suffer from the rise of the dollar and the energy crisis against the background of the Russian-Ukrainian war.

Mostafa Fahmy, CEO of Strategies and Emerging Markets at Fortress Investment Company, said that global financial markets will witness a state of great volatility during the coming period, and will tend to decline more affected by the US Federal Reserve's decision to raise the interest rate to contain inflation, and the many crises the world is witnessing.

He added - in an interview with Al Jazeera Net - that these fluctuations coincide with the repercussions of the Russian-Ukrainian war on the prices of goods and services, and coincide with the continuing effects of the energy, food and climate crises and closures due to the Corona epidemic.

Fahmy pointed out that the markets witnessed the exit of more than 2 trillion dollars due to the uncertainty.

The US Federal Reserve raised interest rates last week by half a percentage point, and announced that it would soon reduce its portfolio of bond holdings.

The Reserve Bank of Australia also surprised investors by raising interest rates on May 3 by a quarter point, even though it had not long ago expected that it would keep them near zero until 2024.

Fahmy expected that the budgets of oil-importing countries and emerging economies in general would be negatively affected due to the rise in energy prices on the one hand, and the recovery of the dollar against their currencies and major currencies in the world on the other hand.

He pointed out that this situation is accompanied by the continuation of multiple and overlapping crises from energy to climate, passing through supply chains, which will put pressure on the budgets of these countries and their citizens, and raise the costs of borrowing from international financial markets.

He said, "The situation at the present time is very complex and crises are chasing each other. The situation is exceptional by all standards, as we saw how the financial markets and stock exchanges rose before the US Federal Reserve's decision, but rebounded to decline again due to the uncertainty in the markets and fears of a recession affecting many sectors."

Mustafa Fahmy believes that the dollar will continue to rise during the coming period, and he did not rule out that the American markets will witness declines ranging between 5% and 7%, also affected by the situation of closures in China to contain the Corona epidemic.

Fahmy: The situation at the present time is very complicated and the crises are chasing each other (Al-Jazeera)

Doubts about the success of plans to contain inflation

For his part, financial analyst Alaa Al-Sheikhly said that global stock exchanges responded positively after the release of the minutes of the US Federal Reserve's decision, because raising the interest rate by 50 points came in line with analysts' expectations, but these stock exchanges quickly reversed the trend, affected by fears and doubts that affected investors' confidence in Following the statements of the British Central Bank, which warned that global inflation levels may accelerate in the coming period, despite efforts to contain it through a strict fiscal policy, as the British Central Bank raised interest rates for more than one consecutive meeting, but it expressed its fears that the economy will enter a state of stagnation if inflation rises towards 10%.

He added - in an interview with Al-Jazeera Net - that doubts about the success of global central banks in containing inflation - which in America reached 8.5% - led to greater pressure on investors and traders in stock exchanges and reinforced the uncertainty experienced by the markets in light of Russia's war on Ukraine, which It raised energy prices to record levels, which reinforces the current inflation situation.

Al-Sheikhly stressed that the world is in a state of uncertainty, stressing that investors and dealers in the markets are watching the developments of Russia's war on Ukraine and its repercussions on energy and food prices.

They also monitor the decisions of the European Union on the ban on Russian oil and gas supplies and their possible negative effects on prices, the closures in China and their reinforcement of fears of the continuation of the global supply chain crisis, as well as the US bond markets that reflect the extent of the confidence of the street and traders.

Al-Sheikhly expressed his belief that stock markets will remain volatile during the coming period, affected by many crises and anticipation of central banks' decisions regarding interest rates and containing inflation.

What about the Gulf markets?

Regarding the Gulf markets, Al-Sheikhly said that they have benefited a lot during the past few period, as a result of the rise in oil and gas prices in the global markets on the one hand, and the positive results of companies on the other hand, but they are witnessing a state of profit-taking as a result of the previous strong rise.

He added that the Gulf markets are also awaiting the results of the review of global portfolios, such as "Morgan Stanley" and "FTSE", noting that the rebounds in the region's markets are not comparable to what is happening in the world's markets, but rather benefited from the outflow of capital from European markets, but he pointed out that Gulf stocks cannot remain isolated from what is happening in the world, although their impact will remain less severe compared to other global stock exchanges.

Al-Sheikhly: The Gulf markets have benefited a lot during the last few period as a result of the rise in energy prices (Al-Jazeera)

Stock prices are hurting

Share prices were hit around the world this May;

Shares of growth-related companies sold off heavily on fears that major central banks will raise interest rates sharply to contain high inflation, according to a Reuters report.

The Japanese "Nikkei" index fell for the second day in a row - today, Tuesday - but it avoided greater losses as investors began to buy back shares, hoping for a rise in their prices, in anticipation of a positive performance of US stocks.

The Nikkei index closed down 0.58% to 26167.10 points, after trimming its losses in evening trading.

The Nikkei index fell to the level of 25,773.83 points for the first time since mid-March last morning, affected by intense selling on Wall Street yesterday evening, especially for technology stocks.

The broader Topix index also fell 0.85%.

Technology stocks were the biggest loser on the Nikkei index.

At the end of trading on Monday, the major stock indexes on Wall Street closed sharply lower.

The Dow Jones Industrial Average ended the trading session down by 2%.

The Standard & Poor's 500 Index lost 3.2%.

The Nasdaq Composite Index of technology stocks also lost 4.3%.

 A different situation in Europe

But the situation was different in Europe on Tuesday;

European shares rebounded from two-month lows with broad-based gains backed by bargain-hunting after heavy selling on fears of slowing economic growth.

In the morning trading, the European "Stoxx 600" index rose 0.9%, after closing yesterday, Monday, at its lowest level since early March.


What are the effects of tightening financial policies?

A report published by Britain's The Economist says that while central banks are battling the worst inflation in a generation, they are putting the accommodative monetary policy of the past decade in the opposite direction.

He says that although stock prices jumped after the Fed rate hike, financial markets have been adjusting painfully to the reality of tightening money.

Global stock markets fell by 8% last April, and fell by 11% in 2022, with higher investor prices and lower growth rates.

The report adds that the results of the tightening of financial conditions are as follows:

  • Currency repricing.

    The dollar has risen 7% against a basket of currencies over the past year.

    Most striking was the appreciation of the US currency against the Japanese yen, the only currency of a large rich country where interest rates are unlikely to rise soon.

    In real terms, the yen is at its lowest level since the 1970s.

  • Growth in risk premiums as investors worry about pitfalls in the new economic landscape.

    In America, measures of “inflation risk premium,” which rises when prices are unpredictable, are at their highest since 1994. In Europe, the spread between what the German and Italian governments must pay to borrow for 10 years has risen due to the risk that tighter monetary policy It makes it difficult for Italy to deal with its high debt.

  • Poor performance even for diversified investment portfolios.

    In America, 60% of investments in stocks and 40% in bonds generated an average annual return of 11% from 2008 to 2021, but have lost 10% this year.

    While 2021 marks the height of “everything going up” as most asset prices have gone up, 2022 could mark the start of “everything going down,” with the end of the low rates made possible by low inflation.

What if the path changes?

The UK Economist report says that as investors struggle, monetary policy makers may be tempted to change course.

If they stop raising interest rates and let inflation go up, bondholders will lose money, but more inflation-resistant assets, like stocks and homes, will benefit.

The dollar will fall which helps many countries that value some of their exports or debt in dollars.

However - the report adds - it is the duty of central banks, including the Federal Reserve, to respond to the economy at home and stop persistent inflation at an intolerable level.

The report continues, "Tighter financial conditions are a natural consequence of raising interest rates... Investors continue to bet that US interest rates will peak at just over 3%."

The Economist concludes its report by saying, "More pain awaits us."