Equity optimism circulates
Traders are cautiously optimistic this afternoon and in turn we are seeing a rally in stocks. European benchmarks are outperforming their US counterparts even though tensions between Russia and Ukraine haven’t been resolved. The international community is taking the issue very seriously, the UK announced it is sending troops to Poland. Despite the political standoff, stock markets in continental Europe are showing impressive gains as the DAX and the CAC are both up almost 1%. It is remarkable the German index is holding up so well when you consider it is heavily dependent on energy supplies from Russia, so a war in that part of the world could spark an energy crisis. The FTSE 100 is firmly in positive territory as banking, oil and mining stocks are assisting the market.
Last Friday, the US revealed very impressive jobs data, and that makes it more likely the Federal Reserve will carry out several interest rate hikes this year. In December, the Fed projected it would lift rates three times in 2022, and in the wake of Friday’s employment data, the Fed funds futures market was pricing in at least five hikes. The NASDAQ 100 is building on the gains that were posted late last week. The technology heavy index is crawling back the ground it lost because of the slump in Facebook shares. For such a long time we kept hearing the FAANGS were moving from strength to strength, but in the past few weeks we have witnessed major falls in Netflix and Facebook, so perhaps, the FANGS are not a sharp as originally thought.
The US 10-year yield increased to 1.939%, its highest mark since early January 2020. Judging by the steady rise in the yield, it seems the bond market is pricing in rate hikes from the Fed. Despite, the upward move in the yield, the US dollar is muted. Typically, the two move in the same direction, but it is possible the dollar bulls are taking a pause in the wake of last week’s update from the Bank of England – where it hiked rates for the second time in as many months. Another factor working against the greenback is the European Central Bank, as the body didn’t rule out lifting rates this year. Gold and silver are moving higher this afternoon as the subdued dollar is making the assets more attractive.
