The growth rate of US government bond yields is still at the top of world news and affects the mood of investors.
After the results of the Fed's September meeting, the regulator decided to reduce the volume of redemption of assets – government bonds and corporate mortgage securities. Naturally, this news, though not immediately, had an impact on the investors in the debt market and caused the sale of Treasuries. In turn, this dealt a blow to the shares of companies primarily in the technology sector, which soared during the coronavirus pandemic amid demand for the services of a number of companies that provide the ability to make remote purchases and other similar services. In many ways, the shares of these companies were bought with borrowed funds due to the infusion of huge amounts of liquidity by the Fed into the financial system through asset purchases.
Now, the markets understand that the current flow of liquidity will steadily decrease, as well as support the demand for growth stocks in general. Amid growing fears, even other promising securities may be under strong pressure. But in general, the realization that major market players will begin to review their portfolios may change the overall alignment in the stock markets in the near future, where shares of banking sector companies may begin to receive noticeable support due to the expectation of rising rates in America and securities of those companies that were not in demand during the pandemic due to the COVID-19 problem, but on the wave of a decline in its impact, they may become the focus of investors' attention.
There is an ambiguous outlook in the currency market, where the US dollar does not receive noticeable support amid a sharp rise in Treasury yields. In our opinion, this is happening for a number of reasons, the first of which is the uncertainty of when the Fed will actually start raising interest rates. Currently, a reduction in asset repurchases and an increase in profitability only support the dollar rate, but so far, they are not able to push its rate noticeably upward. We do not take a rebound of the dollar against the yen, as it is a different story.
In general, we believe that volatility in the stock markets will remain high for some time. The main currency pairs will also consolidate in ranges until strong support and resistance levels are broken. Commodity markets will also be sensitive to the general mood in the markets, whose assets will sharply move up or down.
Assessing everything that is happening, the question arises: when will the markets determine trends?
This question cannot be answered yet. A lot will depend on the incoming fresh economic statistical data, as well as the decision of Congress on the next increase in the national debt level, which must be taken before October 18. Otherwise, the United States will face default with all the ensuing negative consequences for financial markets.
Forecast of the day:
The EUR/USD pair remains under pressure. We expect the pair to drop below the strong support level of 1.1660 and further decline to 1.1600, then to 1.1550.
The quotes of the US WTI crude oil are declining amid the publication of data from the American Petroleum Institute on the growth of crude oil inventories against the forecast of decline. If the data released today from the US Department of Energy also show growth, oil prices will continue to decline. If so, it may fall first to 72.80, and then to 71.25.
