Dollar up over uncertain economic outlook, Lagarde's remarks in focus

Due to the US holiday, market conditions on Monday may be thinned out, a factor that could exacerbate volatility. The European stock market opened higher on Monday after a tumultuous week, with investors anticipating further hints of an interest rate hike path from the central banks this week.

Equities bear market

Last week, Wall Street and the Federal Reserve faced a new reality, and investors suffered big losses with no apparent end in sight.

Now in its 10th down week in the last 11, the S&P 500 is well into a bear market. The Dow Jones Industrial Average fell below 30,000 last week for the first time since January 2021. The futures indices are pointing down, suggesting a further decline may be on the way.

The effect of the Fed's rate hikes on the market has been exacerbated by deteriorating economic data. The reason is that investors and strategists seem to be losing faith in the central bank's capability to soften the landing.

As investors continue to assess the risks that tighter monetary policy poses to the economy, the greenback gained ground against most major currencies on the week's first trading day. The euro also gained strength despite French President Emmanuel Macron losing an absolute majority in the weekend's parliamentary election.

Cryptocurrencies' winter

The most popular cryptocurrency - Bitcoin - has lost about 60% of its value this year, while rival cryptocurrency Ethereum-backed ether is down 74%. On Sunday, June 19, the cryptocurrency market capitalization plummeted to an 18-month low, falling below $850 billion. There was a slight recovery during the Asian trading session on Monday morning. Still, the bears continue to hold control of the downtrend.

A price of $20,000 for bitcoin shows the collapse of confidence in the crypto industry, and this is one of the latest stressors.

NYDIG, a Bitcoin technology firm, reports that public miners are offloading their bitcoins. Upon receiving a block reward, miners can decide whether to keep it or sell it. Miners have enough cash to cover their energy and administration costs in bull markets. However, they must sell their cryptocurrency rewards when a bear market hits.

According to the report, public miners sold 4,411 Bitcoins in May 2022, significantly more than the previous average of 1,115 Bitcoins per month earlier in the year. In addition, the report notes that depressed prices may lead to more mining companies selling their assets.

The cryptocurrency industry has been experiencing growing strains following the collapse of Terra's blockchain last month. Celsius, a lending company, recently frozen withdrawals and transfers between accounts. Some of the giant crypto companies began laying off employees as well. Crypto hedge fund Three Arrows Capital announced it had suffered huge losses last week.

Moreover, the crypto rout coincides with a stock market selloff, which challenges investors' confidence in the industry further.

Events of today

ECB President Christine Lagarde will speak to the European Parliament in Brussels later today, following the central bank's announcement last week that it would increase rates and develop new measures to prevent unexpected increases in borrowing costs in weaker eurozone countries. Since the ECB announced plans earlier this month to raise interest rates to combat inflation, which is currently over four times the ECB's target of 2%, peripheral governments in the eurozone have seen their borrowing costs rise.

Currently, markets expect a 25 basis point ECB rate hike in July and a 50 basis point hike by September, so some analysts think the new tool may give the central bank scope to implement more aggressive rate hikes if necessary.

St. Louis Fed President James Bullard will also add his two cents worth of contribution to the broader discussion later today.

The current risk is that the central banks may have to be even more aggressive at their next few meetings to keep inflation in check.