Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Stocks, Bonds Or FX: Which Is Irrational?

By MarketPulse (Dean Popplewell)Market OverviewDec 21, 2016 07:10AM ET
www.investing.com/analysis/stocks,-bonds-or-fx:-which-is-irrational-200170466
Stocks, Bonds Or FX: Which Is Irrational?
By MarketPulse (Dean Popplewell)   |  Dec 21, 2016 07:10AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Wednesday December 21: Five things the markets are talking about

Stocks, the dollar and U.S yields are trading at lofty heights on the “potentials” of Trump’s fiscal stimulus packages – details not yet disclosed. Nevertheless, one of these asset classes, more than the others, does seem to be out of sync with reality.

Last week, the Fed’s Yellen questioned the wisdom that fiscal stimulus will have on a ‘full employment’ economy by stating that “fiscal stimulus so late in the expansion cycle will almost certainly be met with more rate hikes.”

With the U.S economic slack near ‘non-existent,’ Trumponomics should be expected to support more inflation rather than growth. If so, this will force the Fed to up the ante and tighten monetary policy at a much faster pace than fed fund futures are currently pricing in – currently three-rate hikes by Q4. This justifies the reason why the mighty dollar is perched atop of its 14-year highs and why U.S 10-year treasury’s has +2.75% in its sight. It’s the risks to risky assets or stocks that remains the big unknown.

There is no doubt that human nature will push U.S equities to new highs, but how sustainable is that when accommodation is taking away at a much faster pace and while stimulus packages don’t meet expectations?

Is it prudent to considering take some of the “froth” off equities and bank it?

1. Mixed results from global stocks

With the DJIA closing out just shy of the psychological 20k barrier helped to push Asian indices higher overnight.

In APAC, Australia’s ASX 200 closed up +0.4%, while Singapore’s Straits index gained +0.1%. In China, equities rebounded from a six-week low amid optimism of a renewed reforms push – the Shanghai Composite ended up +1.1%.

In European, equity indices are trading generally lower as banking stocks weigh on the indices. The Spanish IBEX is underperforming after the EU’s ruled against Spanish banks over mortgage interest repayments. The FTSE 100 is being supported as energy stocks are generally trading higher across the board.

U.S futures are set to open flat.

Indices: Stoxx50 -0.2% at 3,273, FTSE -0.1% at 7,040, DAX flat at 11,467, CAC-40 -0.3% at 4,386, IBEX-35 -0.8% at 9,335, FTSE MIB -0.4% at 19,174, SMI +0.1% at 8,252, S&P 500 Futures flat

WTI Chart
WTI Chart

2. Oil finds support, gold prices mixed

Crude oil has found a small bid ahead of the U.S open on yesterday afternoon’s API data that showed a +4.1m barrel decrease in U.S. crude stockpiles.

Dealers could take prices even higher today if the amount is confirmed by the U.S. EIA report mid-morning (10.30am EST).

Brent crude oil futures are at +$55.57 a barrel, up +22c, while U.S. light crude (WTI) futures are trading at +$53.58 per barrel, up +28c from the close.

In the absence of fundamentals over the holiday period, investors can expect the technical support and resistance levels to become more of the price drivers.

Gold has rallied +0.3% ahead of the U.S open to +$1,135.55 an ounce, after closing near its ten-month yesterday as concerns eased over geopolitical events.

Gold Chart
Gold Chart

3. Fixed income back to the U.S reflation trade

Prices of U.S. government bonds have pulled back, reversing the early week’s rally on risk-aversion.

The yield on U.S. 10’s is at +2.565% vs. Tuesday’s close of +2.556%. The pressure on bond prices certainly reflects investor’s optimism over the economy and fiscal stimulus. If Trump disappoints, treasuries will quickly give up a fair bit of its interest rate premium.

Elsewhere, 10-year debt yields in New Zealand, Australia and Indonesia moved higher, while similar-maturity debt yields in South Korea, Singapore and Malaysia edged lower.

Note: Don’t be surprised that due to the holiday shortened trading and thin liquidity that fixed income finds a bid into the turn.

EUR/USD Chart
EUR/USD Chart

4. Dollar pouts in quiet overnight session

The dollar index (DXY) has edged down -0.1% overnight after settling at a 14-year high yesterday.

The euro’s single unit is up at €1.0399 after record capital outflows contributed to pushing common currency close to parity with the dollar for the first time since 2002 yesterday. The pound has extended its losses slightly, to around £1.2331, down -0.2% on the day, after the U.K. public finances data showed larger levels of borrowing than expected (£12.6B vs. £12.3). The yen has caught a bid with the dollar down -0.3% at ¥117.58.

The SEK was up +0.7% outright SEK$9.27 after the Riksbank left its main interest rate unchanged (see below).

EUR/SEK Chart
EUR/SEK Chart

5. Sweden’s Riksbank stands pat

Earlier this morning, Sweden’s Riksbank extended its bond-buying program and left its interest rate unchanged to ensure the pace of inflation continues to pick up towards its +2% target.

Policy makers raised their bond-buying target by +30B SEK to +275B by the end of June next year and said it would keep its main interest rate at a record low of -0.5%.

Like other NIRP’s, the Riksbank walks a fine line as it strains to hit its inflation target without causing the Swedish economy to overheat. In the accompanying communiqué, policy makers expect to start raising rates in early 2018 when a rise in inflation is secured.

Forex heatmap
Forex heatmap

Original post

Stocks, Bonds Or FX: Which Is Irrational?
 

Related Articles

Stocks, Bonds Or FX: Which Is Irrational?

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
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email