A cura di Walter Snyder, Swiss Financial Consulting
The last few days have seen some slight losses on the part of the FAANG stocks, which the media appear to have greatly exaggerated as if it was something extraordinary that the market could not continue its upward trend and have Tesla quickly reach the $1,000.00 mark. The Fed confidently raised interest rates again, which resulted in a stronger dollar on Forex markets for the time being.
There are, however, many market observers who expect the rising interest rates, with the Fed informing the world that more increases are to be expected in the short term, to bring about a recession since that is usually what happens when the geniuses in the Eccles Building push up rates. Others seem to think that the US recession is already upon us as Europe, apparently, is recovering though the banking sector is still exposed to risks, especially the soft Mediterranean underbelly, which means Spain and Italy. One can forget about Greece.
All the while, the volatility index was extremely low, even under 10, as traders continued to buy and sell calls and puts. This has changed slightly in the last few days with volatility at an impressive 11.6, but it means that options have been underpriced when the market is exposed to the new environment of sluggish growth, low inflation, record debt, extremely high equity prices, extremely low bond interest rates and a Fed intent on reducing its balance while the US Government will be forced to raise the debt ceiling or face serious consequences due to a rising budget deficit.
A foretaste of things to come was the movement of the US dollar on Forex markets. The Fed`s intent to continue with rate hikes bodes no good for EM economies that are deeply indebted and have to pay interest in greenbacks, not to mention how they expect to repay the capital in costly US currency. The British pound is likely to weaken further in the coming months as Brexit talks get under way after Ms May manages to form a government if she can.
The new US sanctions against Russia will probably contribute to ruble weakness. As for Venezuela US sanctions have practically eliminated the bolivar as a currency. What all this means is that Forex trading is going to be trickier than usual while the stock market, as noted above, is heading for stormy weather. Add to that the intention of the Fed to restructure its balance sheet, and one is going to have turbulence in the bond market. Trading is going to be riskier than ever as soon as the whole distorted global financial market starts tipping over. The truth will out, and the lies, like 4.5% unemployment in the US, will be refuted. Batten down the hatches!