Market optimism may rise this week. Stock market to continue its rally, whereas USD may fall
Markets have finally found reasons, which allowed them to stop a large-scale sell-off that took place during the whole month. The support was provided by Jerome Powell's announcements and the FOMC meeting results.
Markets have finally found reasons, which allowed them to stop a large-scale sell-off that took place during the whole month. The support was provided by Jerome Powell's announcements and the FOMC meeting results.
Let's start with the reasons. Last week, Jerome Powell made it clear that the US Fed supposed that the US economy would show a smaller decline than expected earlier. In other words, the US economy will hardly enter recession. What is more, it is likely to resume growing after a local decline. It is a really important statement. Despite all the problems, the US economy remains the leading one together with the Chinese one. The rally in the markets was caused by the publication of the FOM meeting minutes. The document reads that the regulator is planning to raise the benchmark rate by 0.5% two times until autumn to reach 2.0%.
However, it is unclear why investors started buying risk assets.
The fact is that traders priced in the key interest rate hike up to 2.0% long ago. However, a hint that after a series of hikes, the regulator may take a pause came as a surprise. If inflation starts falling, the Fed will hardly go on raising interest rates.
These two reasons are really important and have led to a rally in the stock market and to a drop in the US dollar.In addition, the US dollar is likely to resume falling amid lower yield in Treasuries. Thus, the US 10-year bond yield has been dropping for almost a month and now it is below the psychological level of 3%.
What may happen this week?The stock market is likely to go on climbing until the publication of the US employment data on Wednesday and Friday. If the number of new jobs advances more than anticipated, investors may see a signal of a further rise in the market. Meanwhile, the US dollar could remain under pressure, thus allowing the major currencies, except for the Japanese yen, to gain in value.
At the same time, demand for oil, precious metals, copper, and other commodities could be boosted by lower risks of recession, positive trend in the stock market, and the greenback's appreciation.
In general, this week, market sentiment is expected to become more optimistic.
