The US dollar hit a five-year high against the Japanese yen overnight ahead of tomorrow’s almost certain rate hike by the US Federal Reserve.
European stocks rose for a second session in potentially corrective moves, also lifting the Euro. However, US investors were unconvinced and Asia-Pacific futures markets are pointing to a mixed session for local investors today.
Rates markets reflect expectations of a 0.25% hike in US cash rates after the conclusion of the Fed’s two-day meeting tomorrow night. US bond yields are under pressure, with the 10-year benchmark rising to 2.14%.
The question for traders revolves around the desired effect of the Fed. After successfully preparing the market for a hike, could the Fed slow with a ‘shock and awe’ 0.5% hike to allay inflation fears?
Tech investors appeared to fear the worst as the Nasdaq defied the global recovery, slipping around 2%. The S&P 500 index also slipped, although the blue-chip Dow index managed a flat session, possibly reflecting a flight to relative safety.
Corrective moves in European markets last night could stall regional markets today. Although better recent growth data supported the positive moves, developments in the Ukraine conflict were a major contributor.
A feared march through the country now seems less likely. Furthermore, targeted sanctions could inflict real pain on Russia at a lesser cost to Europe. The rallies in continental equities and the euro are notable given the stronger US dollar.
The stronger US dollar also weighed on commodity markets, with both crude oil and gold falling. This could explain why Australian equity futures ended the night session down, while Japanese futures edged higher.
Market insight and analysis from Michael McCarthy, Chief Strategy Officer at Tiger Brokers Australia
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