US Open – A difficult week

But a positive end

A rather downbeat week in the markets is ending on a more positive note, with US stocks opening a little higher and Europe heading for decent gains into the close.

Concerns about sharply rising yields appear to have abated for now, despite the fact that the direction of travel continues to be upward and at a slightly faster pace. Perhaps fears will return next week and weigh a little on sentiment once more but for now, we’re seeing some of the damage of the last few days being unwound.

Ultimately, rising yields are what we want and expect as it means we’re seeing a powerful recovery from the pandemic but as ever, the pace is important. If it’s driven by fear of above target inflation and the central bank being forced into premature rate hikes, it’s naturally far from ideal and triggers the kind of taper tantrum we’ve seen before.

We’re not quite seeing that but we may be seeing a little apprehension as a result of the pace being picked up a notch. US 10-year yields have been gradually trending higher since August with the vaccine-inspired recovery trade further fueling the moves. As ever though, it’s a balancing act and the Fed may be called upon more in the coming weeks to provide investors with more reassurance.

We’ve seen plenty of data recently to suggest economies are in a better shape than envisaged earlier in the pandemic and with the amount of stimulus out there – and another bazooka on the way from Washington – a turbo-charged, consumer-led recovery is now on the cards.

That’s obviously great news for all those that have suffered throughout the pandemic, with Yellen previously suggesting full employment could be achieved as early as next year, but it brings with it potential headaches for policy makers. And when policy makers have headaches, investors get nauseous.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam