Market Wrap – Risk Trades Returns

Markets are seeing a return of risk-on trades on Monday as we see a continuation of last Friday’s moves spill over into the U.S session today and the European session.

Positive news from Ukraine could be helping sentiment in European stocks and indeed the euro currency. The euro has been notably higher anyway since the ECB implemented a 75-basis point hike last week.

More than likely what we are seeing is the market reacting to inflation expectation for tomorrow’s US CPI report. Market expectations are for a lower headline reading and slightly increased Core readings.

The Sept Fed meeting is priced at 89% and I don’t see that changing but a soft reading could change the narrative for the November 2^nd Federal Reserve meeting.

With this in mind we are seeing the Nasdaq, S&P 500, and the DJIA all pushing higher today as market sentiment has seen a notable pick-up. This is also evidenced by the US dollar index.

Today the US dollar index is sliding, with losses seen against EUR, GBP, JPY, AUD, CHF, and NZD. It looks to me also that we may be seeing profit taking ahead of the US CPI report.

One of the potential reasons why the market is pushing higher is due to the fact that no Federal Reserve members are set to speak for some time. The absence could help risk trades.

I suspect this is partially true, however, I feel it is more likely that the market is repricing due to the fact that CPI will come in lower due to the fall in energy prices.

And finally we are seeing two notable trades today. Firstly, a resurgence in Bitcoin, which is highly correlated with technology stocks and indeed risk-on market sentiment.

Then we have gold. Gold is rebounding due to the falling greenback. Gold has a notable inverse relationship with the buck, and this is a key reason behind the latest advance.