Environments such as we have today could have a tendency to produce some element of volatility across markets as funds and institutions wrap up their operations for the quarter.
Also of note, this weekend is a holiday in the United States with the 4th of July being observed on Monday. Friday’s morning public transportation in New York City was slightly less-crowded than usual. This is relevant for traders because this could mean lower levels of liquidity on Monday, and given the potential for increases in volatility around the end of Q2, this could make for a messy environment.
So, despite the fact that many risk trends have appeared to return, with the FTSE100 moving back above its Pre-Brexit levels; traders need to continue to exercise caution. As we enter the third quarter of this year, there are some very big questions to be answered in Financial Markets, and below we look at one of the most pertinent.
The US Dollar and Where is the Fed on Rate Hike Expectations?
Created with Marketscope/Trading Station II; prepared by James Stanley
I’ve listed this as the first theme because over the past two quarters, this is what appears to have been one of the main drivers for risk trends. As we came into the Q1 just two weeks after the first rate hike in over nine years, the Federal Reserve was expecting to hike rates a full four times in 2016. Markets didn’t like that at all; and within hours of the first trading day of 2016, the world expressed some very grave concerns by selling pretty much anything that wasn’t nailed down (or that wasn’t a government bond being back-stopped by a Central Bank).
The risk aversion was so severe in January that we even saw the Bank of Japan make a quick and surprising move to a negative rate policy. This only seemed to make matters worse as this surprise move took global markets by surprise: If the Bank of Japan is so worried about continued Yen strength on the back of risk aversion, what else is it that they see that global markets may not have at the time to make such an extreme move?
