homemarket NewsIs risk on trade intact? Evidence shows it is but need to be watchful of dollar, yields
Is risk on trade intact? Evidence shows it is but need to be watchful of dollar, yields
As we start July, equities seem untroubled, the dollar seems set for a bit of dive, commodities and in particular oil is looking quite constructive and yields remain low for now. So, all in all, it is not a bad place to be in as far as risk appetite is concerned.
As we start the second half of 2021, things look good for equities led by strong global backdrop but the question is, will this global risk appetite hold up?
Looking at recent price action in the key areas, here’s some data:
Equities
Equities have been on a roll and it has continued recently. The benchmark S&P500 notched a new record high for the seventh straight day last Friday - this is a first since 1997. The Nasdaq composite closed last week up nearly 2 percent. So, both the indices posted new all-time highs. The broader Russell 2000 index, which is made of smaller companies and more reflective of the US economy. That posted a bearish outside day on Friday. However, overall, it is still looking good because two indices look good and one we have to watch out for.
Yields
One has to remember that the dominant macro driver of equity returns through much of last year and this year has been interest rates. The US 10-year yield rose from 81 basis points, at the start of 2021 to a peak of 1.74 percent at the end of March and traded at 1.70 percent as recently as mid-May and since then has plunged to 1.4 percent levels. So, yields are lower.
Commodities
Commodities have done well and they continue to be higher. Brent crude sustained a second weekly close in a row, above the $75.60 per barrel levels. While base metals have also rebounded. The Bloomberg industrial metals index saw a bullish outside day on Friday and was up two weeks in a row.
Dollar
The last piece of the puzzle is the dollar. The dollar index posted a bearish outside day at the trend highs on Friday. If one were to compare dollar against a number of currencies, we have seen individual daily reversals against the dollar on Friday. Currencies are heading higher and dollar is heading lower. So, seems like the dollar is headed lower.
For more, watch the accompanying video
(Edited by : Dipika Ghosh)
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