Federal Reserve appears to still have the market’s Back, reports Adam Button.
Gold and the Japanese yen hold on to their gains after most currencies pulled back vs. the U.S. dollar following a sell-off in global stock indexes in early European trading Tuesday.
The developments emerge after stock indices added to their gains on Monday in the midst of the Federal Reserve’s changes to its Main Street lending program, suggesting Fed Chair Powell is in no mood to tighten anything anytime soon.
Global equities continued to roar on Monday with the S&P 500 wiping out all its losses for the year. In the bigger picture, there are imbalances brewing. Treasury yields were lower at the long end Monday and crude fell. Bears remain fixated on the 200-day moving average on the Cboe Volatility Index (VIX), oil's failed break of the March gap and yield's 0.98% resistance.
The yen's Monday rally was a bit of a puzzle. There was talk of short-covering and call buying. U.S. Treasury yields also ticked lower at the long end. Yen repatriation and banking flows are another possibility.
Naturally, we have to consider that risk assets are cycling into safer havens outside of equities but the rally in the Aussie dollar (AUD/USD) and decline in USD/CAD doesn't bear that out as both hit post-COVID extremes to start the week.
The Fed also made a surprise announcement about its $600 billion Main Street lending program that is expected to launch imminently. A host of changes to the program made it easier for the companies to get the money and expanded the interest-free portion to two years from one. There isn't a thought about taking away the punch bowl and if that's the continue message on Wednesday then the euphoric rise in equities will certainly continue.
We will get a better sense of real-money demand for safety with the Treasury auctioning off 10-year notes.
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
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