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FOMC Chair Janet Yellen will testify regarding the US economic outlook before the Joint Economic Committee in Washington DC.
Yellen will speak for the first time after the mispriced Trump victory moved the markets tremendously following the US presidential election on November 8th. Despite the remarkable sell-off in the US bond markets, the significant upside shift in the US sovereign curve and rising inflation expectations, suggests Janet Yellen is expected to sound cautious and to refrain from giving too much credit to recent turbulences in the financial markets. This is the major downside risk in the US and global equity markets today.
Have the markets got ahead of themselves? Is the post-Trump rally sustainable? Have global equities hit the top? Is it time for a correction?
Although many questions will remain unanswered, investors will race to pick-up any hint regarding changes in the FOMC’s future outlook, if any.
Of course, as the US prepares to expand government spending under Trump’s presidency, the Federal Reserve (Fed) may decide to speed up the interest rate normalisation process in order to avoid an unsolicited overheating in the US economy and inflation.
Through Yellen’s testimony, the global markets will a take a chance to readjust their Fed forecasts, to calibrate their US rate hike expectations and to position themselves to the new era under the Republican lead.
The market sees a December Fed rate hike as granted up to 94%. What is more important is the steepness of the Fed’s policy. How many rate hikes should be expected in 2017? As of today, two to four rate hikes would be reasonable, depending on how many of Trump’s promises will go through the line.
The net capital outflow from the US assets summed up to $152.9 billion in September, as foreign investors sold a record net value of $76.6 billion in US Treasuries. China unwound more than 2% of its US holdings. The post-November 8th sell-off in US Treasuries accelerated considerably, hinting that investors worldwide are preparing for a notably hawkish Fed.
Bank of Japan on the track
The Bank of Japan (BoJ) surprised with its plans to buy unlimited amount of Japanese government bonds at fixed rates. The Japan 10-year yields rose past 30%. The USDJPY is set to test the 110 handle, as the BoJ is reinforcing its credibility.
European markets look set to turn lower at the start of trading on Monday. The new US and Chinese tariffs take effect today so traders in Asia and Europe look cautious. Both continents are more exposed to global trade than the US. For markets, the new tariffs …Read more
Whilst risk sentiment has been healthy across the week, this swelling optimism boosted US stock markets to an all-time high overnight. A rally in tech stocks, which have done a lot of lifting for the indices over the year, in addition to fading concerns over U…Read more
Despite a shaky end to trading on Wall Street overnight, which saw the Dow gain 0.6%, the S&P just 0.1% and the Nasdaq slip by the same, Asian markets moved broadly higher on improved sentiment. European bourses are taking the lead from the US over Asia, w…Read more
Asian markets took the lead from Wall Street overnight, rallying as the latest tit for tat measures in the escalating trade spat have not been quite as severe as the markets had been expecting. Tech stocks were also heavily in demand, bouncing back after steep…Read more
Traders are faced with a sea of red in risk-off trading as markets are set to open on Tuesday. Despite the fact the market has been expecting an escalation in trade tensions between the world’s two largest economies with further tariffs from Trump; the reality…Read more
Escalating trade tensions will once again be a central theme to driving sentiment and trading this week, with President Trump widely expected to levy tariffs on a further $200 billion worth of Chinese imports, potentially as soon as today. The elevated trade c…Read more
European bourses are set to take the lead from a positive session on Wall Street and Asia overnight. A drive higher from tech stocks on Wall Street helped lift Asian equities after their recent battering, pulling them off 2-year lows.
Asian markets were endin…Read more
Today will be a busy day for traders with 2 central bank rate decisions and US inflation data all due for release within a few hours of each other. The BoE monetary policy announcement will kick things off, followed shortly after by the ECB rate announcement a…Read more