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ZFX: No direction as investors keep eyes on those market variables
Stocks in Asia-Pacific were mixed on Thursday earlier trading session, following a mixed Wall Street overnight. The Dow closed flat, the S&P gained 0.2% and the Nasdaq jumped 0.4%.
Investors are quite cautious to react to the coronavirus developments, vaccination, lockdowns of those European countries, and the US economic and even political situation.
Recently, traders are concerning about the rise of the bond yields, somehow reflecting the inflation expectations. The benchmark 10-year US Treasury yield broke 1% last week, touching a high of 1.18% on Tuesday, that causing uncertainty to the market. Despite Fed officials reminded that the monetary policy, likely saying QE, will remain supportive in the foreseeable future, the 10-year yield is still trading at 1% above.
It can be negative to see if the bond yields are getting higher under the period of economic recovery, that may drag down the process. It is obvious that the inflation expectations have been picked up after the Democrats secured majorities in both the House and Senate. Investors are betting on the US fiscal stimulus over $1 trillion, that boosting up the stock market and potentially pushing the inflation over the next couple of years.
On the other hand, over the last week, the dollar index bounced from the recent low and keep consolidating around 90 level. It is expected that massive fiscal stimulus and the existing QE policies will lower the dollar. However, when the US bond yields are climbing, dollar recovers its loss.
In longer term, analysts believe that if the bond yields remain high, that will make the “tradeoff effect”. Besides any change of the risk sentiment, the tradeoff is not only the slowdown of the recovery, but also the “revision” of the US stimulus policies.