The latest sanctions announced for Russia continue to impact markets, especially in the European one, but the Fed influenced prices the most.
Some voices say they could go as far as the prohibition of oil purchases from Russia, although Germany's refusal suggests that the sanctions will not be so extreme.
But what changed market sentiment yesterday was the remarks of Federal Reserve Vice Chairman Brainard. She said that she expected rapid drawdowns in the central bank's balance sheet, encouraging expectations of outright bond sales.
The relevance of these statements comes from the fact that the FED vice-president is considered "dovish." Hence, since the less aggressive part of the FED already recognizes the need to make more restrictive decisions in monetary policy, the possibility of a greater number of rate hikes of 50bps increases. What worries the market the most is the bonds sales that, once they occur, would take the bonds yields to higher levels.
The yield on the 10-year bond rose to 2.57%, the highest level since April 2019.
The US Dollar strengthened immediately after these statements, with the EUR/USD pair going more than 50 pips lower, in this case also pressured by the uncertainty surrounding the Ukraine conflict. The USD/JPY, more sensitive to the yields of the US bonds, rose just over 80 pips, approaching the latest highs, and all this even though the Bank of Japan had expressed its disagreement with the excessive volatility of the currency and even threatened to intervene if it continues.
This time, the US stock indices were also affected, which, in principle, had already discounted rate hikes but perhaps not so much a potential more aggressive move by the Fed to reduce its balance sheet with bond sales.
It is noteworthy that two major US banks, Bank of America, and Morgan Stanley, have issued notes to their clients warning of the possibility that this latest bullish movement in the stock markets may have been corrective, anticipating new falls in the future. This has probably also influenced the market.
The Nasdaq Index, as seen on the weekly chart, corrected to exactly the 0.618% Fibonacci level and has since pulled back. Therefore, the reference level is 15,253, which has been touched twice in recent days without being able to surpass it.
Sources: Bloomberg, Reuters.
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