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Stocks rebound likely as yields resume lower

Fawad Razaqzada Fawad Razaqzada 13/01/2021
Stocks rebound likely as yields resume lower Stocks rebound likely as yields resume lower
Stocks rebound likely as yields resume lower Fawad Razaqzada
After rising sharply over the past few days, the US 10-year bond yields have turned lower, providing some support for non-interest-bearing precious metals and underscoring expectations that interest rates will remain low for a long time to come. The greenback was a touch higher, nonetheless.  European stock indices were showing modest gains, while US indices were trading flat at the time of writing. Price action has been very mixed so far this week, across the financial markets. We have seen pockets of strength here and there for stocks, but overall, the markets have not gone anywhere fast.

In 2013, the phrase “taper tantrum” was coined when the markets panicked about the withdrawal of easy monetary policy. This time however, it might be too soon for Mr Market to throw in a tantrum.

Indeed, European Central Bank governing council member Francois Villeroy de Galhau has re-iterated previously dovish remarks that the ECB will keep an easy stance for as long as needed. In the US, two Federal Reserve officials – James Bullard and Eric Rosengren – have also watered-down speculation that bond purchases will be tapered soon. As a result, the yield on 10 bonds have fallen back after their recent sharp gains:

yieldsSource: ThinkMarkets and TradingView.com

Given the renewed weakness in yields, I think that the reflationary trade is likely to remain in place for a while as investors look ahead to more normal times ahead, while knowing full well that central banks will be maintaining their extremely accommodative monetary policy stances for some time yet.

Consequently, the major stock indices, especially those that contain plenty of value stocks as opposed to growth will probably bounce back. One such index is the UK’s FTSE 100, which has been looking quite bullish for a while now. In the past few days, however, it has consolidated its gains along with the wider financial markets. But with a no-deal Brexit being avoided and the fundamental backdrop remaining bullish for equities, I think the dips will be bought and we will see further gains in the weeks ahead.

FTSE
Source: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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