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Stocks, yields and dollar extend rise, hurting gold and EM FX

Fawad Razaqzada Fawad Razaqzada 30/03/2021
Stocks, yields and dollar extend rise, hurting gold and EM FX Stocks, yields and dollar extend rise, hurting gold and EM FX
Stocks, yields and dollar extend rise, hurting gold and EM FX Fawad Razaqzada
Financial markets are still signalling “risk on”, as stocks extend gains in early European trade, with the German DAX rallying to a fresh all-time high. Meanwhile, the US 10-year bond yields have hit a fresh high for the year, while yields on similar maturing debt in Germany and UK have extended gains for the third consecutive day. Underscoring investors’ insatiable appetite for risk, gold was continuing to struggle as it dipped below $1700 again as the opportunity cost of holding the metal rose with yields breaking out. Precious metals were also undermined by ongoing strength of the US dollar, with the greenback also pressurising some emerging market currencies.

Much of today’s focus is likely to be on rising yields:

US 10y bond yields
Source: ThinkMarkets and TradingView.com

In terms of macro data, there’s not a lot on agenda today. We have German CPI due around midday in London. Earlier, Spanish CPI beat expectations easily with a print of 1.3% y/y vs. 0.7% expected. German import prices also jumped 1.7% m/m, pointing to rising inflationary pressures.

Keep an eye on incoming CPI data from key economic regions as inflationary pressures build. If prices start rising rapidly, the Fed and other major central banks would have to tighten their belts - this could then negatively impact stocks.  For now, stock market investors evidently expect that there is still a lot of spare capacity in the economy and many of them probably think it is not the time to worry about inflation. Hopes over a strong economic recovery, turbo-charged by government stimulus, is still pushing investors into riskier assets.

But with the dollar rising and putting pressure on emerging market currencies, the next domino to fall are commodity dollars I believe. One such currency is the Aussie dollar, which has a strong positive correlation with the Chinese yuan owing to the two nations’ close trade ties.

AUD/USDSource: 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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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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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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