What began as a modest dollar spike during Federal Reserve chair Jerome Powell's testimony before a US House committee has mushroomed into a significant risk-off climate with equities under pressure and the dollar and yen competing for safe-haven bids.
"Wednesday saw the S&P 500 break through the key 2,750 support area and close down 1.1%," reports Saxo Bank head of forex strategy John Hardy, with Saxo equities head Peter Garnry calling the dismal stocks session a "Powell hangover".
While the dip in US shares may have been prompted by a strengthening greenback, Garnry cautions investors watching the Brexit-linked sterling collapse not to expect a similar, inverse reaction in the FTSE 100.
"A weak pound moving equities higher is not a given," says Garnry, with Hardy chiming in that the most recent Brexit complexities represent a new and dismal reality for British negotiators.
With the dollar moving higher, Hardy notes that AUDUSD and USDCAD have seen bullish USD moves through their 200-day moving averages and points to EURUSD as the pair to watch this weekend given the twin event risks of the Italian election and the German SPD vote, which will determine the party's participation in a "grand coalition" with Chancellor Merkel.
"A major USD rip could push this pair through the 1.21 level," says Hardy.
Ultimately, Hardy says that the USD likely has until the end of Monday's New York session to either reassert itself with a pronounced bid or watch sellers reappear.
Today sees the release of manufacturing PMIs across Europe as well as US PCE inflation at 13:30 GMT and February ISM manufacturing data at 15:00. Macro readings have been rolling over of late with the G10 surprise index down to 9.9 from 34.4 in January, lending weight to the day's releases.
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