7th February 2018 - USD interest rate outlook can be unfazed of US equities correction

Discussion in 'Fundamental Analysis' started by Walid Salah Eldin, Feb 7, 2018.

  1. Walid Salah Eldin

    Walid Salah Eldin Master Trader

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    The volatility in the equities markets could ease down in the coming days after violent movements in the recent few days.

    The equities traders were looking for such required major correction, after years of low volatility and continued sold pace of rising with minimal profit taken actions.

    The higher interest rate outlook in US could trigger this major correction, after last Friday US labor report of January had shown growing of the wages inflation pressure can make the Fed in rush to raise its fund rate next month.


    As The Average Hourly Earnings rose yearly in January by 2.9% which is the highest scale of rising since June 2009 and the same reached rate last September on the back of last summer hurricanes.


    The FOMC has highlighted in its economic assessment last week its higher confidence in the economic activity and in the inflation ascending ability to reach the Fed's 2% yearly goal, after passing Trump's reflation plans for tax overhaul and after The committee has been referring to the lower than expected inflation rate in US in its previous assessments.

    The correction in the US stocks market to the current extent is not expected to form worry from the Fed to take action or change its language, as it has criticized previously taking unwarranted higher risks and warned about the equities low volatility, as it can have negative impacts on the financial stability.


    This major correction in US stocks market which prompted sell off in the global equities markets drove the demand for US treasuries up severely sending UST 10yr yield down to 2.6459% from 2.8812% which has been its highest reached level since 2014 following the release of Jan US labor report.

    UST 10yr yield stabilized for trading now near 2.76%, after yesterday rebounding of US blue chips stocks, while the future rates of US major equities indexes are pointing to dovish opening today, after Dow Jones could gain back yesterday 567.02 points.


    There was no major direction in the Forex market but just what can be named limited reactions during this major correction comparing with what has happened until now in the Equities markets.

    As there was no signs of changing the interest rates outlook as the main street is still running well and it is still has the same bullish potential away from what is running in Wall Street which can be only named until now a major correction.

    So, The markets are still pricing in higher borrowing costs to come and faster inflation rates despite of this steepest drop in US equities since August 2011 with no more worries to fuel this correction.


    Kind Regards

    Global Market Strategist of FX-Recommends

    Walid Salah El Din
     

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