At the end of last year, market participants repeatedly observed that in the second half of the American session sales were prevailed, which negated the positive moments at the beginning of the day. However, after Christmas, the opposite trend is taking place: stocks on the rise in late trading hours. These market forces are ultimately decisive and set the general tone in the markets: now it is rather confident.
So, futures for S&P500 lost up to 0.8% on the Thursday morning, but as a result of a breakthrough at the end of the session, it finally closed with a 0.5% gain. The protracted market recovery has already crossed the scope of the corrective rebound, adding more than 11% to the December lows. Behind such dynamics there are not any “mysterious market forces”, but also quite realistic reasons.
The United States has softened the rhetoric of negotiations with China and is now showing willingness to come to a final decision in trade disputes. Powell and other Fed officials indicate that they would prefer to wait for the economic situation’s clear up before further interest rates hikes.
The Chinese authorities also abandoned the idea of pursuing a tight monetary policy, boosting the demand for national companies’ shares. Meanwhile, the labour market showed a sharp increase in the number of employees, reducing fears around a slowdown in economic growth.
For the US currency, the situation is not so straightforward: pause hints in the rate increases by the Fed lead to weakening; the progress in negotiations also reduces the Dollar demand, but, at the same time, strong macroeconomic statistics supports it. If good US data continues to be published, monetary policy and Powell’s tone may tighten again, provoking new wave of Dollar rising.
Alexander Kuptsikevich, the FxPro analyst