Time to Sell the Rally?
Stock markets were able to rally higher this week, but questions remain over whether that can last since the Fed is now taking a more aggressive stance. The Fed is planning on hiking rates to combat a surge in inflation. The RBA met this week and failed to alter its rate path projections. However, on Wednesday Governor Lowe did mention that ‘interest rates could rise this year’ which should see the AUD rally. The Bank of England hiked as expected and the Russian/Ukraine crisis bubbled away in the background. Investors should be aware that any incursion by Russia into Ukraine will send natural gas prices higher.
Other key events from the past week
- * US stocks: Sell the rally? Feb 04: US stocks all put in near term bottoms this week. However, with US growth expectations expected to slow most analysts still see strong reasons to sell the rallies. Will sellers step in again next week?
- * AUD: AUS interest rate statement, Feb 01: The RBA took a surprise dovish tilt this week, but the AUD rallied higher anyway. The RBA face a credibility issue as most analysts think the RBA has just denied the inevitable rate hike that will need to come. For now, wages and inflation are key focus points for the RBA.
- * GBP: UK interest rate statement, Feb 03: The BoE showed they were getting serious on inflation and hiked by 25bps. Ramsden, Saunders, Haskell, & Mann all voted for a bigger hike of 50bps and this lifted the GBP this week. Remember that UK PM Johnson still faces a potential leadership challenge.
Key events for the coming week
- * USD: CPI data, Feb 10: The Fed demonstrated, in their last meeting, that they are more concerned about inflation than they are about the recent falls in stocks. This means that if inflation misses to the downside markets will be relieved. If the miss is significant this can reduce rate hike expectations and soften the USD.
- * Seasonal trades: Natural gas falls: Natural gas tends to see strong falls in February. See the strong seasonal pattern here. However, with Russia/Ukraine tensions watch out for this seasonal trend to be ignored this year. Don’t forget HYCM clients can access Seasonax for themselves. For a free trial ask your account manager.
- * China: Time for stock gains? Feb 11: The People’s Bank of China is cutting interest rates and this should stimulate growth. As China celebrate the year of the Tiger will China’s 50 index roar higher this year?