The US dollar hit five-year highs against the Japanese Yen overnight ahead of tomorrow’s almost certain increase in interest rates by the US Federal Reserve.
European stocks rose for a second session in potentially corrective moves, lifting the Euro as well. However, US investors were unconvinced, and Asia Pacific futures markets point to a mixed session for local investors today.
Interest rate markets reflect expectations of a 0.25% lift in US cash rates at the conclusion of the Fed’s two-day meeting tomorrow night. US bond yields are under pressure, with the ten-year benchmark lifting to 2.14%.
The question for traders revolves around the Fed’s desired impact. Having successfully prepared the market for an increase, could the Fed jam through a “shock and awe” 0.5% increase to snap inflation fears?
Tech investors apparently feared the worst, with the Nasdaq bucking the global bounce to slide around 2%. The S&P 500 index slid as well, although the blue chip Dow Index managed a flat session, possibly reflecting a flight to relative safety.
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Corrective moves in European markets last night could backstop regional markets today. Although better recent growth data supported the positive moves, developments in the Ukraine conflict were an important contributor.
A feared walkover of the country now looks less likely. Additionally, targeted sanctions could inflict real pain on Russia at a lower cost to Europe. The rallies in continental stocks and the Euro are remarkable given the higher US dollar.
The stronger US dollar also weighed on commodity markets, with both crude oil and gold dropping. This may explain why Australian shares futures closed the overnight session in the red while Japanese futures rose modestly.
Market insights and analysis from Michael McCarthy, Chief Strategy Officer at Tiger Brokers Australia