Markets return to caution as we see equities stabilise with the DJIA closing in the red, unable to sustain an 8th day of higher closes. The S&P 500 followed suit closing -0.29% while the Nasdaq 100 continues to see improvements in the tech sector, which has seen the index close up 0.58%. Asian equities followed suit with the Nikkei 225 unchanged, Chinese stocks closed slightly negative while the Australian ASX 200 gained 0.2%. In commodities, gold continues to consolidate, trading around 1225 as markets await further data before the next move. Crude oil has remained at its weekly highs kept bid by hopes of an OPEC deal to curb supply and support prices. In currencies, the USD continued to dominate yesterday as we saw the USD index on the verge of printing new 13 year highs resulting in the USDJPY trading above 109.50, the EURUSD below 1.0700 and the USDCHF back above parity.
Today’s economic releases out of the US together with Fed Chairman Yellen`s Testimony will decide whether the markets continue with their risk-on sentiment or not. The big issue is whether the Fed will raise interest rates or not. A raise in interest rates usually results in a strengthening currency as more money flows into the US to take advantage of the higher yields. Today’s data are key components used by the Fed to decide on whether the US economy is doing well or poorly and therefore whether an interest rate hike is valid. Also, markets will be on the watch for Yellen`s testimony in which she might give clues as to the current and future view the central bank has regarding the performance the US economy.
If today’s data is better than expected or Yellen gives cause to strengthen the likely hood of a December hike, we will see the USD strengthen across the board while equities and gold slip. However, should the data be worse than expected or if Yellen gives cause to delay the interest rate hike, we will see the USD slip while equities and gold stay neutral to bid on the expectation of cheaper money for longer.