Investors were quick to put in quotes the progress in negotiations on the allocation of financial assistance for the US economy. However, lawmakers could not come to a compromise, which caused a wave of profit-taking on stock markets. The dollar managed to take advantage of the moment as the US currency index went above 91 points. Today, there is a struggle for this mark. In the event of a further breakdown and fixing the indicator above the 91 mark, it will be possible to speak cautiously about the beginning of an uptrend for the dollar.
Nevertheless, the purchases of the US currency need to be approached rationally. There are few people now who believe in the growth of the US currency, there are some who are playing much against it. As for incentives, the markets received negative news yesterday and everything may completely change by today or tomorrow, even to the point that congressmen will announce agreements on the amount of aid allocated. What then? The dollar will collapse with a high probability.
The incentive factor has a huge impact on markets that respond to the slightest change in the negotiation process. In general, the markets continue to believe that financial assistance in the United States will come sooner or later. There is a version that the beginning of support will be laid by the end of the outgoing year. Such expectations push markets to new highs and risk appetite is growing. Some experts call it nothing less than a stock market frenzy. The fear of missing out on growth outweighs the fear of losing, says the billionaire and co-founder of Oaktree Capital Management. The readiness for increased risks and aggressive purchases suggests that there are no more interesting objects for investment in the market. They appear at a time when there is an escape from risk and a sale is carried out at low prices, the financier believes. However, the reason for the general euphoria is the policy of zero rates of the Fed. All asset classes, whether treasuries, high-quality bonds or stocks are fairly priced relative to each other.
The vast majority of Bloomberg respondents believe that the currencies, stocks and bonds of the EU sector will continue to increase in price in the coming 2021. The emergence of effective coronavirus vaccines negates all the negativity associated with sluggish fiscal stimulus and the expected slowdown in China's economy.
The most attractive investment targets were the yuan and shares of Chinese companies. Despite the collapse during the first wave of coronavirus, assets of developing countries have risen in price by more than 5 trillion in the past year. EM bond indices are at record highs, while stock indices are storming to their highest levels in 3 years.
On Wednesday, the volume of trading in continental Kan reached a record $ 58 billion, which was the second largest value in the last 6 years. The dollar against the yuan exchange rate on offshore trading for the first time in 2.5 years tested the 6.5 mark.
According to Somerset Capital Management, the new year can be a "breakthrough for developing countries due to increased risk appetite." At the same time, the huge US budget deficit together with aggressive monetary stimulus will put pressure on the dollar, supporting the EM markets.
As for the demand of risk, the last word, perhaps, will remain for the volume of stimulus in the United States. Washington is expected to allocate $ 1-2 trillion. A more precise figure will not be known until January 5, when two Senate seats are up for grabs in Georgia.
The material has been provided by InstaForex Company - www.instaforex.com