The market participants clearly showed their desire to fix the previously gained profit, which caused the stock indices to decline locally, and the US dollar to rise in the currency market.
It was pointed out earlier that the market needs new strong positive impulses for further growth, since the previous ones – expectation of new stimuli in the amount of $ 1.9 trillion, the start of vaccinations, and positive corporate reporting of companies mainly in the US, were already utilized. Nevertheless, the most noticeable negative news remains, namely the growth in the yield of US Treasuries. And although it made a downward correction yesterday, there is still a high possibility that its growth will resume. It should be recalled that the yield of the benchmark of 10-year Treasuries reached 1.3330%, which is the highest value almost a year ago.
The increase in yields comes with the expectation of a strong inflation growth this year on the wave of America's expected strong economic recovery, as well as the expected strong infusion of financial resources through the aid package of $ 1.9 trillion.
On another note, January's manufacturing inflation was released on Wednesday. It showed a strong growth of 1.3% in monthly terms, against the forecasted growth of 0.4% and 0.3% in December. As for the annual terms, the PPI surged by 1.7%, against the expected growth of 0.9% and the previous rise of 0.8%. This data strongly hints that inflation is growing. At the same time, the growth of industrial inflation will surely stimulate consumer inflation, which, if it grows rapidly, will definitely force the Fed to reconsider its view on the possibility of further buying back bonds for a monthly amount of $ 80 billion, and then on the levels of interest rates in the future.
In the meantime, the Treasury yield curve is constantly attracting attention, which suggests that professional investors are already carefully looking at the prospects for continuing the unrestrained growth of US stock indexes, which is clearly evident in the behavior of the indices since this week began.
It is clear that the US dollar is still being supported by the growing yields, which prevents it from weakening in the market even in relation to commodity and raw currencies that started to immediately rise amid increased demand for commodity and raw materials assets.
Looking at the current situation, we believe that the correction in the US stock markets will most likely continue. But with regard to the dynamics of the US dollar, we believe that it will remain until this week ends.
Forecast of the day:
The GBP/USD pair is trading at the level of 1.3840. The breakdown of this level will lead the pair further below towards 1.3775.
Gold is trading below the level of 1785.00. If the price fails to break through it, the downward trend will continue to 1767.00.