Senior Market Strategist

Total Content 241

Daily Reports 17

Equities up; dollar down

By David Morrison  |  25/01/2019 16:01
”china

Traders rushed to buy equities while dumping the dollar on hopes of renewed US-Chinese trade talks and rumours that the Fed is considering winding down its balance sheet reduction programme

/>The dollar fell sharply on Friday afternoon while US and European stock indices (absent the UK’s FTSE100) soared as investors recovered their risk appetite ahead of the weekend. There were a couple of positive stories doing the rounds. Firstly, there was confirmation that two senior Chinese ministers would be going to Washington next week to pave the way for a visit from China’s top trade negotiator, Liu He. This helped to put a spring in the step of investors following some downbeat comments yesterday from Commerce Secretary Wilbur Ross. Mr Ross had said that the US and China were still ‘miles and miles’ from any kind of trade deal, although he subsequently added that this shouldn’t be a surprise to anyone given the complexity of such talks.

There was some additional excitement following speculation in the Wall Street Journal that the Federal Reserve may be closer to ending its balance sheet reduction programme sooner than previously anticipated. While members of the Fed have been understandably coy about what the ideal size of the balance sheet should be, it was abundantly clear that it should be significantly below $4.5 trillion, although it wouldn’t get anywhere near the pre-financial crisis level of sub-$1 trillion. Nevertheless, putting together some timeline estimates (with Jerome Powell suggesting an end-date between 2020 and 2021) then a reasonable guesstimate could bring the ‘resting’ balance sheet down to, say, anything between $2.6 and $3.0 trillion*.

Well it now seems that the Fed may be prepared to tolerate a bigger balance sheet which suggests either a slower rate of balance sheet run-off or ending the programme sooner than expected. Either way, this looks like an admission that the Fed now views the balance sheet reduction programme as an important driver of asset prices having previously suggested it was of little consequence.

*Current balance sheet: $4 trillion – then around $40 billion reduction per month for two and a half years
 
Any information, analysis, opinion, commentary or research-based material on this page is for information purposes only and is not, in any circumstances, intended to be an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any person acting on it does so entirely at their own risk and GKFX accepts no responsibility for any adverse trading decisions. You should seek independent advice if you do not understand the associated risks.
 

Share

Author's Other Opinion & Analysis

Show More Daily Reports

Related Daily Reports

Lorem ipsum dolor sit amet, consectetur adipiscing elit. In.

Sentiment

Open a Demo Account Open A Live Account

Losses can exceed deposits

RISK WARNING

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice.

If such information is acted upon by you then this should be solely at your discretion and GKFX will not be held accountable in any way.

  • ForexF
  • IndicesI
  • CommoditiesC
        Back

        Login to Market Insight Account

        Your Market Insight account gives you access to the tools that we offer our customers including our
        Technical Studies & Sentiment for your accounts.

        Forgot Password?

        Don't you have a Market Insight account? With a few easy steps you can easily register to Market Insight

        Create a Market Insight's Account

        Your Market Insight account gives you access to the tools that we offer our customers including our Technical Studies & Sentiment for your accounts.

        register_ty

        Thank you!

        Welcome to Market Insight family!

        You have succesfully completed the registration.
        We will send you an e-mail to give you some
        instructions and our Terms and Conditions!
        Our account representatives will be contacting you as
        soon as possible. If you have any further questions
        please do not hesitate to mail us via info@marketinsight.com