The calm after the storm – Market Overview

The calm after the storm – Market Overview

The markets experience some calm after a turbulent week during which the U.S. treasury bonds yields have raised concerns among investors.

In China, the economic figures for inter-annual industrial production for February showed a figure of 35.1%, while retail sales numbers peaked at 33.8%, exceeding the analysts’ forecasts. However, the concerns of authorities about a potential credit bubble and the announcement of restrictive measures to counteract the possible adverse effect have dragged the Chinese stock market down.

The Hang Seng index is in the process of a potential formation of a reversal Head & Shoulders pattern with a neckline zone around 28328, whose loss could trigger losses in the index with a theoretical objective in the 25520 zone.

This downward movement in the Chinese stock market has not been transmitted to European or North American futures, which started the week with mild gains.

There are no planned releases of critical economic figures that may affect the market today. The main attraction of investors will be on Fed’s meeting scheduled for Wednesday.

At this meeting, the main focus of attention will be the Fed's research team's economic projection, but above all, on President Jerome Powell's statements.

After his speech, many of the questions are expected to be about inflation and U.S. Treasury bond yields in the press conference.

If the Fed chairman fails to show firm determination to avoid these increases in bond yields with clear measures such as increased asset purchases or if Powell undervalues ​​these movements because they respond to better expectations growth of the economy without therefore representing a significant obstacle, the probability that long-term interest rates will continue to rise is expected to be high, according to many market analysts and investment bank reports.

The fixed income outflows, which some reports from banks such as Deutsche Bank point out, could reach up to 2% in the case of the American 10-year, potentially exerting a negative influence on the stock markets and pushing the U.S. Dollar higher.

This movement is already being evident in the USD/JPY, a pair with a high degree of positive correlation with American bonds' yields. The graph below shows that it has reversed its previous downtrend and is now heading towards the next reference level, around 110.00.

Sources: Reuters, Bloomberg.

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