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Increased risk appetite weakens the U.S. Dollar, boosts stocks - Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The economic figures published yesterday in the U.S. are another factor confirming the market’s expectations regarding a return to normality.

The published economic data also goes in the same direction at a global level, as China's interannual GDP for the first quarter published this morning and showing an 18.3% increase.

The only factor of uncertainty continues to be the increase in the number of infections, especially in Europe. However, the markets put their hopes in the vaccine immunization.

A weaker U.S. Dollar.

The result of all this in the market has been a return to a greater risk appetite that has slightly weakened the U.S. dollar, boosting stock markets and in a very significant and contradictory way slowing the sale of bonds of U.S. Treasury Bonds.

The rebound in U.S. bond prices has brought yields to lower levels not seen since the beginning of March. In a scenario of higher growth expectations, such as the present one, which would raise expectations of a change in the Fed's monetary policy, the logical reaction would have been the sale of bonds, which usually act as safe-haven assets, and with it the increase in their yields.

But Fed’s persistence to keep rates low until the economy fully recovers and the significant drop in inflation expectations that occurred after the publication of the latest data this week has led investors to change their view towards these assets. Yesterday, many investors closed their long positions in bonds, causing the Tnote yield to drop to ​​1.55%. In terms of price, as we can see in the graph below, it finds itself in the process of completing a reversal pattern that would activate above the 132.65 level and. If this occurs, it could bring the bond to yield levels around 1.35%, corresponding to a price around 134.30.

This decline in bond yields coupled with a weaker dollar in a robust economic growth scenario are factors that support GOLD as an investment asset. The precious metal experienced a significant rise yesterday. Although investor interest seems to have declined recently, something noticeable in the fall of ETF positions, it technically points to a return to bullish movements, especially if the zone where the 100-day SMA line passes around 1800 currently exceeded.

Sources: wsj.com, reuters.com.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.