OANDA– Stocks Depression As Inflation Fears Drive Fed Rate Hike Expectations, Dollar Follows Treasury Yields, Oil Softer As Supply Returns, Gold Steady
Every trader over the weekend checked out the Goldman note that considered 4 Fed rates hikes and balance sheet overflow in July, if not earlier. Rising yields are kryptonite for lots of tech stocks and that theme wont alter up until after we get past the very first couple rate hikes.
Today is all about danger aversion as worries grow that monetary markets totally misread the Feds scramble to battle inflation. Even cyclicals are having a hard time as the White House and Senator Manchin appear nowhere closer to getting Build Back Better done. Over the weekend, the Washington Post reported that Manchins $1.8 trillion social-spending plan appears to have been pulled. The Biden administration knows this will be the last major piece of legislation that will get done prior to the midterm elections and something requires to get done over the next month.
Regardless of all the concern with inflation and there still be a lot of froth in the market, US stocks, in especially cyclicals should do well over the short-term. The Nasdaq is already down over 6% in January, however that may not last as mega-cap favorites such as Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc (NASDAQ: GOOG), and Amazon.com, Inc. (NASDAQ: AMZN) might have very strong profits.
Focus on Inflation
The supply chain situation is leading to lots of empty grocery shelves throughout a number of supermarkets. Wall Street has actually become extremely positive that the Fed can go ahead and raise rates in March and this inflation report will likely validate the growing belief that 4 rate hikes can take place in 2022.
FX
In spite of growing optimism abroad for European assets, surging Treasury yields and risk hostility on Wall Street has the dollar making a strong run. Now that the United States economy is generally at complete employment and with inflation still running hot, the scramble for rate walkings appears like the dollar might still be king a little while longer.
Oil
Crude prices are lower after Libyas largest oil field resumed production, Kazakhstans TCO oilfields are back to typical levels, and as Chinas zero-COVID tolerance will cause new restrictions. The oil market will likely stay really tight as the world finds out to cope with COVID. Once test makers have a better manage of the scenario, travel restrictions will continue to be raised as the focus will go to screening and that ought to do wonders for international travel.
Considering how much oil prices rallied recently, the current weakness is rather minimal given how tight this market is still anticipated to be throughout the very first quarter. WTI crude may continue to wander here up until a better understanding is had with how successful China is in preventing further spread of omicron.
Gold
With worldwide bond yields hovering near pre-pandemic highs, gold costs are not performing too awfully. The balance sheet overflow is the huge concern mark and that will likely drive the flattener and have lots of investors needing an alternative safe-haven such as gold at some point this year.
Now that the Fed is rushing to get rates to neutral and to start shrinking the balance sheet, which indicates the yield curve might flatten more which is good news for gold.
Bitcoin
Bitcoin and Ethereum got knocked down early as Treasury yields rose as expectations stay strong that inflation will not reduce anytime quickly, triggering the Fed to deliver more than a couple of rate walkings this year. The top 2 cryptocurrencies have an uphill fight to return back to their particular all-time highs as the cryptoverse is now providing more investment chances that consist of NFTs, metaverse bets, and several altcoins that are making a run to become the next huge blockchain.
Short-term volatility will remain raised for Bitcoin and Ethereum, however for long-lasting hodlers, the outlook still looks intense.
Post By Edward Moya, OANDA
Updated on Jan 10, 2022, 3:28 pm
Every trader over the weekend checked out the Goldman note that considered 4 Fed rates hikes and balance sheet runoff in July, if not faster. Rising yields are kryptonite for lots of tech stocks and that theme will not alter up until after we get past the first couple rate walkings.
Today is all about danger hostility as worries grow that financial markets totally misread the Feds scramble to battle inflation. Wall Street has ended up being very positive that the Fed can go ahead and raise rates in March and this inflation report will likely validate the growing belief that 4 rate hikes can occur in 2022.
Bitcoin and Ethereum got knocked down early as Treasury yields surged as expectations stay strong that inflation will not alleviate anytime soon, prompting the Fed to provide more than a few rate walkings this year.
