Gravity Defying
If you remove yesterday’s price action and look at news flow alone it wouldn’t make for terribly appetising reading. In particular, there was seemingly no progress emanating from Pakistan from second round talks between the US and Iran. Markets may have been sanguine enough to take no news as good news, however, given the new status quo in the Strait of Hormuz, this is unlikely. This is because material global economic impacts are stacking up with each day this impasse extends. So, how then did two US stock indexes, the S&P500 and Nasdaq 100, reach record highs under such conditions?
Well, one thing is for sure: it wasn’t central bank speak. Members of the rate setting committees of the ECB and the Fed spoke yesterday and the messages weren’t supportive to debt yields. Starting with the Fed, President of the Cleveland Reserve Beth Hammack confirmed the base case for Fed rates from here was no change. Particularly for the tech heavy S&P and Nasdaq index this shouldn’t have read as good news. A prominent member turning their back on monetary easing for a ‘good while’ should also have supported the Dollar: it didn’t.
Hawkish comments from the ECB’s Latvian central bank representative also failed to support the Euro. The member of the governing body didn’t condemn and perhaps even condoned the market’s bets on two rate hikes this year, beginning as soon as June. The jury remains out therefore on exactly what caused such a risk-on feel to markets yesterday with price history now adding to the potential size of any correction should sentiment sour into the weekend as it did last week.
Discussion and Analysis by Charles Porter
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