European equities open slightly lower after Fed’s meeting – Market Overview

By: Miguel A. Rodriguez

15:01, 17 June 2021

1623926696.png
Stock markets in Europe lost some ground, although volatility remained at low levels after yesterday's Fed meeting concluded with a more hawkish bias in forward guidance.

Chairman Powell tried to downplay the forward guidance due to the uncertainty regarding the evolution of economic growth and inflation. Additionally, he said there was no rush to start the tapering process, which finally caused a certain movement back and forth, especially in stocks markets. These have somewhat recovered, but the Treasury bond yields ended up rebounding +8 bp to 1.58%. However, the most significant movement occurred with the U.S. Dollar, which rose more than 1% against the euro.

EUR/USD fell today to the 1.1950 support area. Should it close below this level, it would open the way to the 1.1850 area.

For the most hawkish part, the dot plot shows higher expectations of rate hikes than anticipated, with two increases (+50 bp) by the end of 2023 compared to none or one that discounted the market. While in the March meeting, only 7 of the 18 Fed members expected at least a 25 bp rise, now there are 13 (11 even expecting two rises). Seven of them expect the first rise to occur in 2022 (vs 4 in March).

Among the most dovish members are Fed’s president and vice president. The latter tried during his appearance to lower the hawkish tone but without success. This might be due to the currency market, where the general feeling is that the Fed has reversed its bias following the recent release of inflation figures, showing significant hikes.

Also, the economic projections released during yesterday's meeting showed a significant improvement over the previous ones. Progress in the labour market and job creation stand out, making chairman Powell say they could lead to an unprecedented improvement over the coming summer months.

Faced with this scenario, the markets recorded a rebound in the Treasury Bond Yields up to 1.60% in the 10-year benchmark, and consequently a rise in the Dollar. In the case of USD/JPY, a pair highly correlated with the yields of American bonds, it surpassed the barrier of 110.30. Technically, it should not find any obstacle until the 110.95 zone, the next reference level.

Sources: Bloomberg, reuters.com.

Share this article

This information prepared by capex.com/za is not an offer or a solicitation for the purpose of purchase or sale of any financial products referred to herein or to enter into any legal relations, nor an advice or a recommendation with respect to such financial products.This information is prepared for general circulation. It does not regard to the specific investment objectives, financial situation, or the particular needs of any recipient.You should independently evaluate each financial product and consider the suitability of such a financial product, by taking into account your specific investment objectives, financial situation, or particular needs, and by consulting an independent financial adviser as needed, before dealing in any financial products mentioned in this document.This information may not be published, circulated, reproduced, or distributed in whole or in part to any other person without the Company’s prior written consent.
Past performance is not always indicative of likely or future performance. Any views or opinions presented are solely those of the author and do not necessarily represent those of capex.com/zaJME Financial Services (Pty) Ltd trading as CAPEX.COM/ZA acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via CAPEX.COM/ZA, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15.  Magnasale Trading Ltd is the principal to the CFD purchased by investors.

Most affected instruments

USD/JPY

$ 10

EUR/USD

$ 10