Rolling coverage of the latest economic and financial news
Mohit Kumar, of the broker Jefferies, explains that a US-Iran deal could have a greater impact on investors’ expectations for interest rate movements this year than in the stock market.
In terms of market reactions if a deal is agreed upon, we should see another leg higher in risky assets and lower in rates. However, positioning suggest that the rates market should see a greater reaction than equities.
For equities, we are still bullish, but believe that the easy part of the rally is behind us. S&P positioning has reached just above 5, while Eurostoxx is at +2.2. Positioning is not extended yet, but beyond the relief reaction of a deal, we do not see a massive move higher from these levels. European equities can get a boost higher in the near term simply because positioning is much less crowded than in the US.
Whilst the geopolitical headlines provided the main boost to markets yesterday, they got further support after the latest US PCE inflation print was softer than expected, easing concern around the need for rate hikes. The release showed that headline PCE was only up +0.4% in April (vs. +0.5% expected), whilst core PCE was up +0.2% (vs. +0.3% expected). So that led investors to dial back expectations for a Fed rate hike, with the probability of a hike by December down to 59% by the close, having been at 62% the previous day.
Fed officials also didn’t sound in a rush to hike either, with NY Fed President Williams saying that monetary policy “is right where we want it to be”. Admittedly, there was discussion of a hike, with St Louis Fed President Musalem acknowledging there “there is a scenario where the economy might require a rate increase”, but that was still conditional.
Continue reading...
Rolling coverage of the latest economic and financial newsMohit Kumar, of the broker Jefferies, explains that a US-Iran deal could have a greater impact on investors’ expectations for interest rate movements this year...
See more
