The heavy sell-off in US 10 year bonds continued this week as the Fed is projected to see at least 8 more 25bps rate hike this year. The Fed is facing a challenge as US inflation is sitting above 8% which has seen numerous Fed speakers expressing their willingness to act aggressively by hiking rates more quickly. However, will the Fed’s policy slow US growth? If it does then the Nasdaq looks vulnerable to a stock correction. The picture is uncertain at the moment since there is not enough evidence to yet suggest that US growth definitely is slowing. However, be sure that investors will be watching US growth metrics extremely carefully from here.
Other key events from the past week
- USD: Inverted yield curve, Mar 29: When/if we see an inversion of the US10-02 yield curve expect calls for a coming US recession to grow. See here for an article explaining why the inverted yield curve is watched so closely by investors.
- Global Indices: Dip bought, Mar 30: The global dip in stocks has largely been bought on the Russian/Ukraine risk. The S&P500, Eurostoxx 600, & MSCI Asia Pacific Index all recovered their initial losses on the Russian/Ukraine risk. The next direction from here for stocks will depend on global growth/recession risk.
- China 50: Last chance to be brave? Mar 24: There are risks to this outlook with half of Shanghai entering Covid lockdowns this week, but also opportunities. With the PBoC injecting CNY 130 bln in liquidity into China this week is it a great time to buy into the China 50 despite falling Chinese PMI data?
Key events for the coming week
- AUD: RBA to signal hike? April 05: The RBA reached a turning point at their last meeting. Investors will be looking for any hints of a move towards higher interest rates and even a potential hike this year. If they confirm this the AUD should rise.
- Seasonal trades: Amazon hot streak: Amazon stock has a red hot patch coming up. Amazon has a 100% win rate in the data sample.
- Gold: US growth in focus, Apr 06: US growth is a key area stock investors will be looking at going forward. Will the ISM services PMI data on Wednesday show any signs of the US service sector slowing down? See here for a piece written earlier this week on gold’s potential for gains on possible US stagflation.