The world stock markets seem to be starting to lose its strength to rise. At the same time, the US dollar continues to weaken in the currency markets amid a correction in the yield of US Treasury bonds.
Following last week's strong rally, the growth for stocks' demand noticeably weakened on Monday, although the increase in stock indexes remained. We believe that investors have already worked out the topic of implementing J. Biden's proposed support measures in the amount of $ 1.9 trillion. And now, it is necessary to wait for this.
Meanwhile, the extremely negative US employment data published last Friday, eased the pressure on the US dollar in the currency market. This is also accompanied by a slight correction in Treasury yields. Despite the current condition, it is not excluded that the US currency will strengthen again after some correction due to several reasons.
US Treasury Secretary Yellen believes that the labor market will reach full employment before this year ends, in view of the stimulus measures in the amount of $ 1.9 trillion and the expansion of the vaccination process for the Western population. Against this background, inflation will clearly start rising, which will force the Fed to think about revising the super-soft monetary exchange rate. Moreover, Yellen said recently that if such growth occurs, the Treasury Department and the Federal Reserve have all the opportunities to quickly resolve this problem. However, this just indicates a promising change in the course of fiscal stimulus this year, which will simply fail.
There is no doubt that this scenario can be implemented if the impact of the coronavirus pandemic is brought under control. But the question is when? In our opinion, this will finally become clear before spring, when the process of production and vaccination of the population will become widespread.
As a result of this scenario, we believe that the US dollar will continue its global growth after a slight correction. As for the stock markets, we believe that the correction process will also begin, although another surge is possible. The main negativity for broad demand for stocks will be the prospect of reducing stimulus measures by the end of this year and the beginning of the process of raising rates next year. It can be recalled that the dynamics of the yield of treasuries currently indicates such a scenario in the future.
Forecast of the day:
The USD/JPY pair fell below the level of 105.00. It is expected to further decline to the level of 103.40.
The prices of WTI crude oil hit the values of January 2020 amid the rally in global stock markets. We believe that a correction in stock indices may lead to the beginning of the same process in the oil quotes, whose price may decline by 23% on the Fibonacci to the mark of 56.85 dollars per barrel.