Here are the big questions facing markets and investors this week.
Will the Federal Reserve provide a further jolt for bond markets?
Top tier benchmark bond yields — US, Germany and UK — have turned higher this month, as haven buying over North Korea fades and investors focus on data and tougher talk from central banks
Upbeat US inflation data, a hawkish Bank of England and the expectation of the European Central Bank signalling a tapering of bond purchases next month have weighed on government bond prices.
Given the strong performance this year across emerging markets with carry trade strategies gathering pace, investors should pay close attention to the extent of weakness in top tier bonds as the quarter ends.
Picking up the baton this week, the Fed meets with the focus on whether a reduction in its vast balance sheet beckons along with a rate tightening in December. While the market has raised the odds of a tightening by the end of the year back to about 50 per cent, up from less than a quarter a week ago, investors still expect a very modest pace of rate increases over the coming 12 months. Hence the weak performance of the US dollar this year and low expectations for any significant bounce in the reserve currency, that has also been a boon for EM gains.
Analysts at Crédit Agricole note: “We believe that the Fed will keep a December hike on the table but lower its 2018 dot plot to signal only two hikes. Even so, the new policy rate path should remain well above the market rate expectations.” Michael Mackenzie
Does the dramatic slide in bitcoin have room to run further?
Bitcoin dropped briefly below $3,000 on Friday as the cryptocurrency extended a brutal eight-day crash before rebounding in similarly spectacular fashion.
The latest bout of volatility came after China’s big three bitcoin exchanges said they would halt trading, underscoring concerns about a crackdown by regulators in one of the biggest cryptocurrency markets.
Bitcoin’s woes also deepened last week after Jamie Dimon, one of the world’s most influential bankers, called bitcoin a “fraud” better suited for drug dealers and murderers than legitimate businesses. A move by the UK’s financial watchdog to warn on initial coin offerings hardly helped the situation.
Its meteoric rise and abrupt plunge have once again raised an existential question: should bitcoin really be called a currency, or is it more like ultra-speculative assets of days past? Adam Samson
Are oil prices about to break out higher?
The Brent crude oil chart has looked like the big dipper since March, with dramatic sell-offs and rallies occurring in quick succession, as traders try to find the balancing point for the US shale industry.
In total, investors have had to weather three oil price drops and three rallies each of 14 per cent or more in just a six-month period, unsurprisingly leaving many feeling discombobulated by the gyrations.
But in the past week Brent looks like it might — finally — be back on firmer ground, after it climbed above $55 a barrel for the first time since April. Its gains since June have been slow and steady but now total 26 per cent, putting crude firmly in bull market territory.
US shale companies have largely stopped adding new rigs, lowering forecasts for just how much oil they might add to the market next year.
The question now is whether the rally can continue. The biggest threat will come from a quick response from the US shale industry, who seeing higher prices may rush to hedge their future output by selling contracts forward and putting pressure on the market. But strong demand, boosted by three years of low prices, should help. David Sheppard
Is this the week that attention shifts back to British politics?
Last week all eyes in the markets were on the Bank of England as it struck a hawkish tone, sending sterling and gilt yields sharply upwards as traders braced for an approaching base rate rise.
Bond markets have begun to price in a 25 basis point rate rise, with the policy-sensitive two-year gilt ending the week at 0.42 per cent, after touching a 15-month high of 0.48 per cent on Friday.
This week attention is set to shift back to politics, with Theresa May’s keynote speech on Brexit in Florence on Friday acting as a curtainraiser to the political parties’ upcoming conference season.
What currency appreciations give with one hand, they take away with the other. The political sensitivity of sterling since last year’s EU referendum means its recent strengthening to $1.36 versus the dollar will be a boon to the prime minister, but it is not such good news for Britain’s exporters and tourism industry, which benefited from last year’s devaluation.
As BoE governor Mark Carney contemplates when to unwind last year’s post-referendum rate cut, the persistent absence of UK wage growth in the face of steadily falling unemployment and rising inflation poses a dilemma.
And although the Mr Carney insists that his decision will be based on economics rather than politics, he will be mindful of the need to have some firepower in the locker as the uncertainty continues about the final form of Britain’s exit from the EU. Kate Allen
http://ift.tt/2x9qJAn
Tidak ada komentar:
Posting Komentar