No need to fear, Fed says

There is no need to fear rate tightening. That seems to be what Fed vice-chair Stanley Fischer was trying to say. He said markets should not be surprised by the timing or pace of rate hikes as the Fed has prepared them for it.

The U.S. Federal Reserve Building stands in Washington
Source: Bloomberg

However, he acknowledged that the central bank action could lead to more volatility in the markets, although insisting that the overall impact would be manageable.

Ironically, but unsurprisingly, his comments caused more fear than allayed them.

The VIX index, a measurement of fear, spiked to around 14.5 from 12.0, indicating that renewed anxiety of rate normalisation is gushing back into the markets. Some positive US data added to the fear.

Durable goods orders was in line with expectations in April, but for March reading it was revised higher to 5%.

Consumer confidence also improved further, while new home sales beat consensus. European indices ended in the red accompanied by US equities, which fell around 1%.

It was a dollar move, more than anything else that hit the commodities, although they seem to find some support in early Asia. Gold stayed around USD 1180+, although the advance beyond USD 1200 last week had always look shaky.

We could still see more downside into the month-end should the greenback gain more ground. Likewise, oil prices found a floor, albeit potentially a temporary one. Brent crude was last seen edging back towards USD 64 after dropping to a one-month low.

Oil still looks vulnerable for the coming weeks, with news of Iranian plans to raise its crude oil production which doesn’t help the matter. Unfavourable fundamentals of oversupply and under demand continue to persist, which would imply any oil rallies are likely to be short-lived.

In China, we wonder if the strong gains seen early this week will continue on Wednesday given weaker risk sentiment. The China A50 futures suggest that bulls may take a breather today but with Chinese equities, it is really difficult to say.

A clutch of positive news over the past-two days has helped sentiments in the Chinese stock markets. But this could be eclipsed by the 23 A-share IPOs slated for 2-3 June 2015.

Bloomberg estimated that the listings may lock up CNY 4.9 trillion (USD 790 billion) of liquidity. Meanwhile, China’s data on industrial profits and consumer sentiment may be of interest.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.