The Euro is preparing to demonstrate the best quarterly result for the last 7 years, and the markets are experiencing a nerve storm. However, we shall admit that the storm is not as heavy as it was in 2013. Following the hawkish rhetoric of the ECB, investors of BoE and BoC noticed the readiness of the RBA to tighten monetary policy. Investors believe that the Reserve Bank’s confidence in the rise in wages is a direct way to monetary restriction. As a result, the yield of Australian bonds was able to compete with foreign counterparts.
Dynamics of debt obligations rate
Source: Financial Times.
Stock market gave example to the other markets. The rise in the cost of borrowing is a bearish factor for stocks, therefore we shall not be puzzled by the strongest one-day decline in European indices since September and the largest monthly rise in the S & P 500. Investors interpreted the signals from the stock exchanges of the Old and New Worlds as the decline in the global risk appetite, which supported safe-haven assets.
Movement in the foreign exchange market is also high. Recently, the market of currency-interest swaps, which hedged the risks of foreign investment, has increased up to amazing level of $2.4 trillion a day. Exit from bonds and shares led to the closure of transactions and the increase of the exchange rate of monetary units G10 against the USD.
Dynamics of operations in the foreign exchange market
As a result, the USD, which was affected by the "hawkish" rhetoric of the heads of the central banks-competitors, the outflow of capital from the USA and investors’ distrust to the policy of Donald Trump, fell to a minimum level since October and it seems that the losses will no longer be restored. However, there are still some optimists in the market. ANZ believes that the USD will resume rise in the third or fourth quarter against the decrease of risk appetite. The USD is not growing against the Japanese yen and the Euro, however, the position of the USD against the "AUD" and "NZD" can look very good.
Meantime, we must admit that even positive US GDP statistics for January-March, was of no help. The third assessment showed that the economy grew by 1.4%, which is a better result than + 1.2% in the second and + 0.7% in the first reading. The leading indicator from the Federal Reserve Bank of Atlanta showed that in April-June GDP will rise up to 2.8%, however it is unlikely that Donald Trump will be able to boost economic rise up to 3-4%. As least, IMF is skeptical about it. IMFcites historical parallels and draws attention to the fact that excessive public debt and low productivity will not allow the USA to achieve its goals. Well, it is another factor showing high possibility of correction in the S & P 500 in future.
EUR/USD bulls, which feel comfortable above the base of the 14th figure, may also become active. Unexpected positive data on German inflation shows that possibly Mario Draghi was right when he said that the slowdown of HCPI is temporary. And although the "bears" for the euro believe that ECN leader simply indicated that there are some discussions in the Governing Council, it is not easy to close those gates that have been opened.
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