Daily Alert – Friday 26th February 2021: Threat of growth makes markets crazy (what?)

Mark NugentDaily Alert, Feb 2021

Daily Alert – Friday 26th February 2021: Threat of growth makes markets crazy (what?)

Well things went a bit crazy yesterday. As the US 10-year bond yield hit 1.6%, the markets became overwhelmed with the sense that huge, imminent economic growth and thus huge inflation were just around the corner. Plus, Bank of England’s Haldane warned that there is a risk inflation may be more difficult to tame this time around, requiring monetary policy makers to act more assertively than is currently priced into financial markets.

What happened? Global equity indices dropped like a stone (inflation = interest rate hikes = bad for corporates, and the narrowing of the yield gap between risky big tech stocks and risk-free bond yields). The USD rises on interest rate fears (or hopes – depends on your viewpoint). GOLD drops on strong USD. JPY rises and commodity currencies drop on risk-off sentiment.

Add to all that, it is month end.

Of course, nothing in market fundamentals changed between Wednesday and Thursday. So, we expect equities to recover. And that is what they are doing as I write (2pm UK time, Friday). I am looking at the Nasdaq as it has dropped the farthest from all-time highs. I do not normally enter trades on a Friday but if it continues up I may be tempted.

The most notable moves across the week are: equities and GOLD drop; the GBP breaks its 6 week winning streak (just – that may change by tonight’s close); the JPY/commodity currency relationship has been largely predictable based on sentiment.

I traded GBPUSD long earlier in the week for a gain of 2.28% on risk of 1%. There is a brief video in the member’s area.

Hindsight trade of the week was probably going long on USD as soon as the market started to go daft – around 2pm yesterday. But I seldom trade intra-day as that leads to all-day-screen-staring and blindness, death. I’m OK with my 2.28% doing it my way – 20 mins/day.

Have a great weekend and I’ll be back on Monday.

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