The USA will publish unemployment claims on October 22 at 15:30 MT time. How to trade after the release?
Surge of revenue of American government bonds to 3% worries investors
Often considered to be a barometer of financial markets, the yield of 10-year American treasuries for the first time since January 2014 has managed to overcome the 3% threshold, although at the beginning of this year it accounted for 2.4%. Investors started worrying because 3% is considered by many as a frontier where negative impact could affect the stock market. Moreover, because of more expensive money, the risk of approaching a recession steps up.
Against the backdrop of soaring revenue of debt markets, the futures for the S&P 500 index lost approximately 0.5% by the middle of the day, as there was a global decline in risk appetite.
Pressure on the cost of American government bonds provoked an increase in the budget deficit, soaring inflationary pressures as well as expectations of tightening monetary policy in America, as some financial experts point out.
March's surge in industrial inflation and also retail sales in the US exceeded forecasts. At the same time, consumer inflation in the United States for the first time since early 2017 exceeded 2%. Acceleration of inflation might urge the Federal Reserve to accelerate its policy tightening. As follows from the quotations in the futures markets, the probability that the number one US financial institution will lift the rate three times in 2018 (in March the rate was already increased by 25 bp to 1.5-1.75%) exceeds 80%. Besides this, investors currently don’t exclude that the major US bank will surpass its own forecasts (two more increases in 2018) and will go to the fourth increase for the year - this likelihood has almost reached 40%. The lift in interest rates, combined with the high American trade deficit, leads to a decrease in bond prices, which raises their profitability.
Riskier assets and gold ended last week with huge gains due to the weak US dollar’s performance. Let’s discuss what will drive the markets today.
The Federal Open Market Committee (the department of the Federal Reserve) will publish the meeting minutes on October 7 at 21:00 MT time.
The focus of traders’ attention shifted from Brexit and the US stimulus to the coronavirus . The WHO claimed that Europe become the new Covid-19 epicenter.
Canada will publish the monthly GDP growth on October 30 at 14:30 MT time.
The European Central Bank publishes the monetary policy statement alongside with an update on the interest rate on October 29, at 14:45 MT time.