STATE OF THE MARKETS

Dovish Feds sent the Dollar lower. US stocks continue to hit fresh records after the Federal Reserve announced its tapering plan starting this month. With no mention of rate hikes, the Dollar dipped below the 94 handle and Dow (+0.29%), S&P (+0.65%), Nasdaq (+1.04%) including Russell (+1.80%) marched to record highs. The 10Y benchmark yielded back to 160 basis points as bonds lost demands.

In the commodities market, crude tumbled to $79/bl after EIA reported another week of increase in supplies, signaling cooling demand. Gold fell to $1,758.70/oz before bids emerged to settle the yellow metal around $1,769.50/oz as New York closed. Elsewhere, iron ore edged higher to $99.20/tn as hope remains for the new US infrastructure stimulus.

In the FX space, risk sentiments improved with Yen being back to offer alongside King Dollar. Markets remain cautious as Swiss was in bids alongside Kiwi. Short and medium term accounts seemed ready to bid Euro/Dollar higher while sending Dollar/CAD lower as long term sentiments remain unchanged. On Thursday, markets look to earnings reports from Airbnb (ABNB), Cigna (CI), First Solar (FSLR), Regeneron (REGN), Square (SQ) and Uber (UBER) as well as the US jobless claims ahead of the NFP on Friday.

OUR PICK – No New FX/Commodities Pick

No new picks as we had three losses in a row. The Feds did announce its tapering plan of $15b which by count then would end the stimulus program by July meeting next year. Chair Powell held to the belief that inflation is transitory due to supply bottlenecks and will abate eventually and that’s why there was no mention on rate hike path. That’s dovish for the Dollar as with that tapering plan, the earliest Feds can raise rates is late 2022 or early 2023.

The Feds might surprise with an early hike, but in our view, at $28 trillion debt liabilities, a surprise hike is the last thing the Feds want to do. At any rate, if your investment horizon for a specific objective is 18 months or less, among the best sovereign bonds in G8 space are the Loonie and Kiwi. 1Y to 2Y yields are 0.72% to 1.06% in Loonie while Kiwi offers 1.10% for 6 months notes and 2.06% for 2Y.

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Disclaimer:

This article is for general information purpose only. It is not an investment advice or a solicitation to buy or sell any securities. Opinions expressed are of the authors and not necessarily of MFM Securities Limited or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.