Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Risk Assets Rally Ahead of Fed Minutes, RBNZ Lifts Kiwi

By XM Group (Trading Point )Market OverviewNov 23, 2022 05:44AM ET
www.investing.com/analysis/risk-assets-rally-ahead-of-fed-minutes-rbnz-lifts-kiwi-200632706
Risk Assets Rally Ahead of Fed Minutes, RBNZ Lifts Kiwi
By XM Group (Trading Point )   |  Nov 23, 2022 05:44AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
NZD/USD
-0.30%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Retreat in the dollar and yields helps fuel risk appetite
  • Stock markets rally, kiwi jumps after RBNZ decision
  • European PMIs paint grim picture, Fed minutes next


Risk appetite returns

Investors went on a shopping spree on Tuesday, raising their exposure to riskier assets without any clear news catalyst behind this sudden shift in sentiment. The S&P 500 closed at its highest levels since mid-September as implied volatility collapsed, with a pullback in the dollar and real yields helping to fuel risk appetite.

It is quite striking that implied volatility has declined so dramatically heading into what could be a stormy and illiquid holiday season. Even though every leading economic indicator points to trouble ahead, demand for downside protection has evaporated, which suggests that equity traders are either too complacent or heavily hedged already.

There’s a sharp contrast between asset classes about what lies ahead. Valuations and earnings estimates in stock markets are still consistent with a soft economic landing whereas the bond market is saying the plane is more likely to crash-land, with the yield curve sinking deeper into inverted territory.

One of these markets is mispriced and it is more likely that stocks will need to adjust to reality, as the weakening economic data pulse across the world suggests that avoiding a recession next year would be a miracle. It seems like a better time to play defense rather than load up on risky bets.

RBNZ goes big

In New Zealand, the Reserve Bank raised interest rates by 75bps overnight to 4.25%. This move was on the hawkish side of market expectations and the officials noted that they spent a lot of time discussing an even bigger increase of a full percentage point.

Baked into the RBNZ’s latest economic projections is a recession that’s expected to hit early next year
, which Governor Orr downplayed as likely to be “shallow”, stressing that reining in inflation is still the main priority and that interest rates will need to move even higher.

The New Zealand dollar rose, although not in a convincing manner. It’s worrisome that the kiwi couldn’t stage a mighty relief rally even despite such hawkish rhetoric from the RBNZ, a softer US dollar, and the brighter mood in risk assets. The outlook remains gloomy, with worries around China and the global economy likely to overshadow any positive domestic developments.

European PMIs and Fed minutes

In Europe, the latest batch of business surveys contained both good and bad news. Sadly, the surveys are consistent with the Eurozone economy contracting at a quarterly rate of 0.2% this quarter. On the bright side, the rate of decline eased from October and inflation is showing signs of cooling.

Overall, these surveys lend credence to the narrative that the Eurozone is on the brink of recession but the downturn won’t be as deep as investors feared initially, thanks to the massive decline in energy prices.
Hence, while the outlook for the euro has started to improve, the prospect of a trend reversal is still premature, and probably a story for next year.

It’s a similar story for sterling. The latest business surveys suggest the UK economy is already in recession, on pace to contract 0.4% this quarter, which will likely deepen further considering the sharp drop in forward-looking indicators such as new orders. With the economy rolling over just as the government tightens its belt, it’s difficult to be optimistic on the pound, especially considering its close links to global risk sentiment.

Finally, the minutes of the latest Fed meeting will be released at 19:00 GMT. A pivotal inflation report and speeches from most FOMC officials since that meeting render the minutes outdated. Nonetheless, the market almost always reacts to this release, and a hawkish tone could give the dollar a helping hand.

Risk Assets Rally Ahead of Fed Minutes, RBNZ Lifts Kiwi
 

Related Articles

Risk Assets Rally Ahead of Fed Minutes, RBNZ Lifts Kiwi

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email