Is the market even trading on the basis of today's Federal Open Market Committee meeting? That's Saxo Bank head of FX strategy John Hardy's main question as we head towards an almost-certain interest rate hike with hawkish expectations built in across the board.
"One thing that could shake up expectations is Fed chair Powell stating that he wants to see press conferences at every Fed meeting, thus expanding the number of venues for potential rate hikes," says Hardy.
Investor expectations are divided between forecasts of three and four 2018 rate hikes, adds Saxo Bank head of commodity strategy Ole Hansen, but no move beyond the 3% terminal rate is expected.
Beyond the Fed and the dollar, Hardy sees EURGBP moving lower ahead of Thursday's Bank of England outing with the 0.83 level potentially coming into view as the Brexit discount on GBP dissipates.
Energy shares posted the strongest performance in equity markets over the past 24 hours, reports Saxo equities head Peter Garnry, with Hansen adding that the 2% breakout in oil prices Tuesday represented both a technical break of the extant triangle formation and a potential geopolitical shift in the wake of meetings between US president Donald Trump and Saudi crown prince Mohammed bin Salman.
"Bin Salman and Trump are looking to ramp up pressure on Iran in a move that could see the US impose further sanctions on Tehran," says Hansen, adding that such a move could resrict Iranian output by 250,000-500,000 barrels/day by year-end.
Further oil direction will be provided by today's inventory report from the US Energy Information Administration, which comes in the wake of API reporting a surprise drawdown Tuesday.
In single stocks, Garnry says that Facebook shares found strong support at the $161-162 level following their dip below the 200-day moving average, closing Tuesday's session at 168.15. "I think we are likely to see further volatility and big daily swings in FB," Garnry concludes.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach