…while firmer gas and oil prices provide relief for FTSE’s energy names.
It looks like bond yields are once again driving the markets, causing pain for investors in zero- and low-yielding assets like gold and tech stocks, while rebounding crude prices have provided energy stocks some relief:
Source: ThinkMarkets and TradingView.com
After a sharply lower open this morning, European markets attempted to stage a recovery as oil and gas prices reversed course, with investors shrugging off the decision by the US to tap its emergency oil reserves. Crude oil prices rose more than 2% on the session. But technology stocks, which carry lower yields, remained undermined as bond yields rose further. This led to a mixed session for European indices, with the likes of the FTSE higher, but the DAX lower. In the US, the Nasdaq hit a new low for the week shortly after the open on Wall Street, after futures had struggled throughout the session.
Despite the mixed session for European indices, overall investor sentiment remains modestly bearish. I wouldn’t be surprised if we see a more broad-based sell-off in days ahead, particularly if more lockdowns are introduced because of the deteriorating Covid situation in the Europe. If concerns over the economic impact of the latest lockdowns intensify, it will also raise serious question marks about the efficacy of the Covid vaccination programmes. You would think that Covid cases would be much lower given the high rates of inoculation.
For US investors, it is all about the Fed’s policy, with the central bank expected to pursue a more hawkish approach towards monetary policy, as authorities try to tame inflation where CPI has recently hit a three-decade high. Investors have been selling low- and zero-yielding assets as yields on government bonds continue to ascend. This is why gold and silver have fallen further, while technology and other growth stocks are also finding no love.
Looking ahead to the rest of the week
There are a few macro highlights to keep an eye on, with the bulk of the data to be released on Wednesday ahead of the Thanksgiving holiday in the US on Thursday.
Wednesday will be a big day for the markets, starting with the RBNZ rate decision and culminating in the release of the FOMC’s last meeting minutes. Here’s what’s on tap:
- RBNZ policy decision - As a reminder, the RBNZ raised rates by 25 basis points at its last meeting in October after surprising the market with inaction in August, when the central bank was originally expected to hike rates for the first time since before the pandemic. With the hiking cycled having started and inflation overshooting, there is less uncertainty about a hike this time. The key is will it be 25 or 50 basis point increase in OCR, the benchmark interest rate. With the closely-watched inflation expectations data showing a big rise from 2.3% to 3.7%, a 10-year high, there is a possibility we might see a 0.5% hike, as the central bank aims to bring CPI back to its targeted range between 1 to 3 percent, with a central target of 2% being the ideal level. Such a move, if seen, should send the NZD higher across the board, while a 25bp increase may not trigger a massive move.
- FOMC meeting minutes preceded by US data dump – this includes preliminary GDP (second estimate), durable goods orders, personal income and spending, jobless claims and core PCE Price Index among other things. Wednesday afternoon it will all be about the US economy as we will have some important data to look forward to, including the Fed’s favourite measure of inflation: the core PCE price index. The latter should move the dollar if it shows a big print. Over the past four months, it has stabilised around 3.6% year-over-year. But if it starts to accelerate to the upside again, then this will raise serious question markets over the Fed’s “transitory” inflation outlook. We will also find out exactly how concerned the FOMC was about inflation in their last policy sitting, when they decided to start the taper process. If some policymakers supported a faster pace of tapering because of concerns over inflation, then this may indicate willingness to speed up QE reduction in the months ahead, should inflation or the economy warrant it.
Thursday and Friday
Thanksgiving in the US means Wall Street will be closed, while from Europe there only a handful of macro highlights such as French GDP and ECB’s policy meeting minutes. Pound traders may wish to keep an eye or ear on BoE speakers, Governor Andrew Bailey and MPC member Haskel. There’s nothing significant to look forward to on the last day of the week, particularly with some US investors likely to be making it a long Thanksgiving weekend break and given that Wall Street will be trading for half of the day. Elsewhere, we will have a few not-so-important macro releases on Friday, including Aussie retail sales, Japan CPI and Swiss GDP.
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