All focus on U.S. bonds, raw materials – Market Overview

All focus on U.S. bonds, raw materials – Market Overview

The 10-year American bond, Tnote, falls in price, reaching a yield close to 1.40%, a level not seen since the beginning of the crisis

That’s before the Federal Reserve began its process of interest rate cuts and its unlimited asset purchase program.

In terms of price and from a technical perspective, the bond has broken to the downside, losing its uptrend. Although the RSI oscillators are in the oversold zone on the daily charts, the price is still close to the March 2020 lows.

This movement shows that there is an outflow of funds from these assets as a consequence of an increase in inflationary expectations.

The impact on raw materials and stock markets.

In this sense, it is interesting to observe the evolution of raw material prices. In the case of Copper, the industrial metal and benchmark for global economic activity, we can see it continues its unstoppable upward path. Technically, it has overcome all the main resistances, and it is heading towards the area of ​​historical highs around 4.52.

Traditionally, Copper has a positive and high correlation with the behavior of the American stock markets. However, in recent weeks we have seen that this correlation has been lost. This raw material price increases when there is greater demand in the market due to increased industrial activity and investments in infrastructure, boosting the stock markets.

But on this occasion, this increase in commodity prices may have an inflationary effect in the medium term that might force central banks to withdraw their stimulus policy, potentially increasing interest rates that would negatively influence the valuation of the companies and therefore in the quotation of the stock market indices.

That is why we could be at the beginning of a change in the market scenario, from one in which the risk sentiment was predominant to another in which changes in the strategy of central banks might grow in importance, with economic data fundamentals such as inflation and real interest rates prevailing.

The U.S. Dollar strengthens marginally in this new scenario, especially against the Japanese yen, which is highly correlated with long-term interest rates, but the main pairs still move within the narrow trading ranges of recent days without defining a trend for now.

Sources: Bloomberg, Reuters.

This information/research prepared by Miguel Ruiz (“the research analyst”) does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.

The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.

JME Financial Services (Pty) Ltd trading as ZA.CAPEX.COM acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via ZA.CAPEX.COM, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15. Magnasale Trading Ltd is the principal to the CFD purchased by investors