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Sep 02
Examination of the influence of the US Dollar in the markets today

US Dollar Strength as Interest Rates Rise

By Currencies, Currency, Federal Reserve, Interest rates, Investing No Comments
US Dollar strength is influenced by the Feds interest rate policies

US Dollar strength is influenced by the Feds interest rate policies

US Dollar strength has been energized by higher rates since the beginning of 2022. Good news for you if you’re long. A stronger US currency makes it cheaper to import foreign goods and services. On the other hand, it can cause weaker export demand. Domestic manufacturers may see slowdowns in exports. It may also ease inflation pressures. With the Federal Reserve expected to continue raising interest rates this year, it may be good news for dollar bulls and bad news for bears…for now.

Higher Interest Rates Bolster the Dollar

The U.S. dollar is the most recognized financial investment in the world. It is a safe-haven asset, utilized in times of market stress. Now that the U.S. economy is currently growing at a decent clip, we can expect the Fed to increase interest rates in the coming months. Higher interest rates should help to control inflation and boost the value of the dollar.

Federal Reserve Focus is On Inflation, Not Recession Fears

The Impact of a Stronger USD

A stronger currency can have several negative consequences for the economy. A rising greenback makes U.S. goods more expensive on the global market. This may lead to weaker export demand. This strength can also lead to reduced demand for U.S. goods and services, which are priced in dollars. Additionally, a rising dollar can create inflationary pressures, as a stronger currency can make imports cheaper. In time, its strength could limit growth, as it becomes more expensive for American companies to import goods. A weaker dollar could lead to increased inflation, as goods and services become more competitive on the global market. Weakness in the US Dollar would also be a boon to exporters as foreign demand for American goods picks up.

Long-term Outlook for U.S. Dollars Value

A rising interest rate environment is typically positive for the dollar, which is why it’s important to take a long-term view when investing in the greenback. While it’s true that our currency is likely to appreciate in the near-term, it’s also important to consider how it will fare over the next decade. There has been speculation of other alternatives to replace the US Dollar as the reserve currency, but we don’t see this happening anytime soon.

Is it Time to Buy USD?

If you believe that the U.S. economy will outperform other economies, then it may be a good time to buy the USD. First, determine whether it’s overbought or due for a correction. What is its current trend? Try to gauge public sentiment by monitoring the most recent headlines. If you see more positive headlines regarding the U.S. economy, it’s likely that the dollar will continue to appreciate.

US Dollar Chart

Bottom Line

Investors should always monitor the U.S. dollar’s strength. Significant strengthening in USD can lead to economic weakness. The dollar’s strength is largely dependent on interest rates, so investors should keep an eye on Fed policy. If you believe that the U.S. economy will outperform other economies in the future, then it’s a good time to buy the U.S. dollar.      FEL-PM-220831

Trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results. This matter is intended as a solicitation to trade futures and options.     

 

Aug 19
Federal Open Market Committee

FOMC: Are Investors Underestimating Fed’s Resolve

By Federal Reserve, FOMC, Interest rates, Investing, Stocks No Comments
FOMC: Investors May Be Underestimating Fed's Resolve

The Federal Reserve is poised to raise rates yet again

‍The Federal Open Market Committee (FOMC),  otherwise known as the Federal Reserve or Fed, has proven its resolve to normalize monetary policy by raising interest rates. You may have read that many investors are underestimating the central bank’s resolve in its upcoming meetings. Several recent statements from voting FOMC members have indicated that more rate hikes are inevitable. Its focus, reducing inflation. As a result, they will continue to tighten monetary policy even if equity markets react negatively. What should our next steps be as investors?

Why Investors Are Underestimating the Fed’s Resolve

There are a few reasons why investors are underestimating the FOMC resolve. We have been expecting the Federal Reserve to pause in the face of a potentially volatile correction. Recent experience tells use when things go haywire with the markets the Fed jumps in and lowers rates. This has been true, but we have not had inflation in the equation. The Fed-funded survey of business confidence has shown signs of weakening, which may give the Fed pause in its decision-making.

The key role of unemployment in the Fed’s decision-making

There are reasons to believe that the FOMC is prepared to continue its rate hiking campaign. Consider the Fed’s primary focus, inflation, and the trajectory of the labor market. The Fed’s tightening campaign has been dependent on the state of the economy. Since the beginning of 2022, the Fed has been steadily reducing its balance sheet, which has kept the central bank on track with its plan to normalize monetary policy and bring an end quantitative easing.

See: Federal Reserve Focus is On Inflation, Not Recession Fears

Equity market implications of anticipated rate hikes

Short-term implications of higher interest rates may be bearish for stocks. Equity markets have been supported by an accommodative monetary policy, which has allowed companies to issue debt at record low rates. As rates are raised, the higher costs may weigh on company earnings as companies issue more expensive debt. You may have noticed that the yield curve is inverting, an indication that investors expect lower growth in the future. This inversion may be a signal of a market correction or recession in the not-too-distant future.

Potential Fallout

Higher rates negatively impact fixed-income investors, as higher rates may put downward pressure on bond prices. As the Fed continues rate hikes, it puts pressure on the short-term rates, making it difficult for borrowers to service their debt. Higher rates may increase the U.S. dollar value. This hurts U.S. companies that derive their revenues from abroad.

The Importance of Understanding the Fed

The Federal Reserve has a dual mandate of maintaining full employment and keeping inflation in check. The FOMC may be approaching its intended goals on inflation. The Fed’s survey of business confidence has shown signs of weakening in recent months, which may indicate that the Fed is approaching its employment goal. The FOMC seems eager to hike rates and end its stimulus campaign. Expect continued market volatility. As investors, we must prepare for the Fed’s continued rate hikes. We should strive to understand its decision-making process and adjust our investment strategies in a rising interest rate environment.       FEL-PM-220819

Trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results. This matter is intended as a solicitation to trade futures and options.           

Aug 16
Federal Reserve focus is on inflation, not recession. Central bank coordination with other countries is essential for world economic health.

Federal Reserve Focus is On Inflation, Not Recession Fears

By Interest rates, Investing, Stocks No Comments
The Federal Reserve Focus is On Inflation, Not Recession Fears

The Federal Reserve Focus is On Inflation, Not Recession Fears

The Federal Reserve’s focus on inflation must co-exist with the recent sell-off in equity markets. This has led to a lot of discussion about the possibility of a recession. Some pundits have even begun referring to the current climate as a “bear market” or a “corrective period.” Despite these fears, we have yet to see any evidence of an imminent recession. The Fed is currently focusing on inflation and not recession fears because they know that there are four key risks from continuing to raise interest rates: A slowing economy, deflation, financial instability and stagflation. We can think of the Federal Reserve as having two main goals: Keep unemployment low and make sure prices (inflation) don’t continue higher. The risk of recession is one of many factors they consider when making decisions about raising interest rates. The Fed must consider all four factors when deciding to continue to raise interest rates.

Inflation is the Federal Reserve Primary Concern

Discussion among pundits and investors revolves around the question of whether the stock market has “corrected” or entered a “bear market.” From the perspective of the Federal Reserve, the real risk is not a decline in the stock market, but a decline in the price of goods and services. The Fed considers a stock market correction as needed after a long period of strong performance to remain healthy. The Fed’s preferred measure of inflation: The core Personal Consumption Expenditure (PCE) price index. The core PCE price index measures inflation by removing the most volatile components of the consumer price index, like food and gas. In the Fed’s view, if the core PCE price index begins to decrease, it may be a sign of the economy growing too slowly.

The Labor Market 

The unemployment rate has fallen to 3.5%. The Federal Reserve preferred measure of the labor market is the Labor Market Conditions Index (LMCI). The LMCI measures employment growth and whether workers are switching jobs. When the LMCI is falling, it suggests that the labor market is not as tight as it may seem. The Current Employment Situation Survey, which measures the unemployment rate, is almost as reliable as the LMCI.

FOMC: Interest Rates are Stable and Does Not Signal Recession 

One of the most common myths about the stock market is that a rising interest rate is a sign of a recession. In fact, the current level of interest rates is not an indication of how strong or weak the economy is. It does not signal that a recession is imminent, nor does it predict what will happen to the economy in the future. The Federal Reserve has been raising interest rates because it expects inflation to rise in the future. The Fed’s preferred measure of inflation, the core PCE price index, is 4.8%. If the Fed does not raise interest rates, they risk allowing inflation to rise even higher.

Recession Fears Don’t Change the Timeline for Interest Rates

The Federal Reserve is expected to raise interest rates to tame inflation. They may lower rates during times of recession, but not at the expense of out-of-control inflation. Inflation control is the priority. The Fed tries to be transparent and projects long-term plans for interest rates. This is called the Fed’s “dot plot,” and it shows how each member of the Federal Open Market Committee (FOMC) anticipates interest rates will change over the next several years.

Conclusion

Think of the Federal Reserve as having two main goals: Keep unemployment low and make sure prices (in this case, inflation) don’t go too low or too high. The risk of recession is one of many factors they consider when making decisions about raising interest rates. Despite what pundits and investors are saying, the current sell-off in equity markets does not signal an imminent recession. The Fed is focusing on inflation and not recession fears because they know the four major risks: A slowing economy, deflation, financial instability and stagflation.       FEL-PM-220811

Trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results. This matter is intended as a solicitation to trade futures and options.           

Aug 04
Financial markets today may be influenced by the political climate.

Financial Markets Today and the Political Climate

By Interest rates, Investing, Stocks No Comments
Financial markets today may be influenced by the markets perceived political climate.

Financial markets today may be influenced by the markets perceived political climate.

 Financial markets today can be heavily influenced by the political climate. What’s going on in Washington, D.C., and other world capitals can have a big impact on how investors feel about the economy and how they respond to new information about stocks and bonds. If you want to invest wisely for the long term, you need to understand how political factors can affect financial markets and what that might mean for your portfolio. In this article, we explore how political climate affects financial markets so that you can make smart decisions with your money no matter what is happening politically.

What is the Political Climate?

There is no exact definition for the political climate, but it broadly refers to the general political environment. This includes issues such as the overall stability of the government, the strength of the economy, and the amount of administrative pressure on the government. The political climate is closely related to the economic climate, which refers to the general state of the economy. This environment can, and will, shift over time, so it’s important to monitor developments closely. If you want to invest wisely, it’s important to understand how political factors can affect financial markets and what that might mean for your portfolio. In addition to closely monitoring the political climate, it’s also important to track economic indicators, such as employment rates and inflation rates, as they affect financial markets and your investing decisions.

The Importance of the Political Climate to Financial Markets

The political climate is important because it can have a significant impact on financial markets. Political events can cause short-term fluctuations in the stock market, and longer-term changes in the political climate can affect stock prices, interest rates, and other financial indicators. Political uncertainty can cause investors to become more cautious and less willing to take risks. This could lead them to sell stocks and invest in less risky assets, such as government bonds. Either of these moves could cause the value of stocks to go down and lead to a drop in bond prices. Meanwhile, investors might become more willing to take risks, which could lead them to buy stocks and increase the demand for bonds. This could cause the value of stocks to go up and lead to a rise in bond prices.

How the Political Climate Affects Financial Markets

When political events occur, they can have an impact on the financial markets. Investors respond to these events by adjusting the risk they take. If investors become more cautious, they will shift their portfolios toward less risky assets. If investors become more aggressive, they will shift their portfolios toward stocks. The following are some examples of political events that could cause investors to shift their portfolios: – The government could enact new legislation, such as tax laws, new regulations, trade tariffs, or other legal changes. – There could be a change in the leadership or a major administrative change, such as the appointment of a new cabinet member. – There could be a significant change in the geopolitical climate, such as a change in relations with a foreign country. – There could be an unexpected event, a natural disaster or a significant economic report that causes investors to become more cautious or aggressive.

Inflation is a worldwide phenomenon

Inflation is one of the biggest threats to long-term investors. It happens when there isn’t enough goods and services produced to meet the demand. Prices for goods and services rise as a result. Inflation is the rate of price increase for a basket of goods. When prices rise, a dollar buys less. Inflation has the potential to erode an investor’s purchasing power because it reduces the value of current and future investment returns. With a stronger economy, there is a larger demand for goods and services. To meet this increased demand, companies raise their prices, which causes inflation. Inflation is more of a global phenomenon than a purely political one. It’s not something that is solely decided by the government. Inflation is a more natural part of human economic behavior. Financial markets can then be affected as investors predict that central banks may intervene.

Election Cycles and Market Timing

The political climate plays an important role in the timing of financial market decisions. Investors may be more or less likely to sell stocks, buy or sell bonds, or change investment strategies depending on the political climate. Investors may be more likely to sell stocks or shift their portfolios toward less risky assets during an election year, when there is additional political uncertainty. The reasoning behind this phenomenon is that investors may be concerned about a change in government leadership, which could affect the economy, market conditions, and the value of stocks. Investors may be more likely to buy stocks or shift their portfolios toward riskier assets during non-election years, when there is less uncertainty about government policy. This could be due to a number of factors, including a stronger economy that leads investors to be more optimistic about future market conditions.

Government Debt and Deficits

Debt is a promise that one person or government makes to another person or government to repay a certain amount of money at a future date. Deficits occur when government spending is greater than government receipts, such as taxes. Elected official may use various political maneuvers to reduce debt or enact policies that increase revenues, such as raising taxes. Some investors may be more likely to sell government bonds if they are concerned about government debt and deficits. If government debt becomes too large, it may make it difficult for the government to pay back its loans. This could cause investors to worry that there may be future inflation as a result of increased government spending.

Economic Growth and Confidence

The economy is a complex system of production and exchange that affects a country’s financial markets. Investment decisions are often affected by economic indicators, such as gross domestic product (GDP), which measures growth in the economy. Investors may be more likely to buy stocks and shift their portfolios toward riskier assets based on economic indicators. The stock market is often driven by investor confidence. When the economy is growing, investors tend to be more optimistic and more willing to take risks with their money. This leads them to invest in stocks and other risky assets. When the economy is in a recession, investors may become pessimistic and willing to take fewer risks with their money. This leads them to shift their portfolios toward less risky assets.

Summary

The political climate is an important factor to consider when investing for the long term. The political climate can have an impact on financial markets through changes in investor sentiment and changes in government policy. When investors are more cautious, they are more likely to sell stocks and purchase government bonds. This can cause stocks to go down and government bond prices to go up. When investors are more optimistic, they are more likely to buy stocks and sell government bonds. This can cause stocks to go up and government bond prices to go down. Keep an eye on the political climate. It can change quickly, so it’s important to keep tabs on what is going on in Washington, D.C.

Trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results. This matter is intended as a solicitation to trade futures and options.              FEL-PM-220804

Jul 20

Predicting the Future of Interest Rates

By Interest rates, Investing No Comments
Predicting the Future of Interest Rates

Predicting the Future of Interest Rates

Interest rates impact everything from buying a new home to starting a business to saving for retirement. Since interest rates are such an important indicator of the health of the economy and financial markets, what they do next is something everyone wants to know. The good news is that there are plenty of knowledgeable people who have strong opinions on this topic. Moreover, there’s no shortage of predictions about what will happen in the future regarding interest rates. These views aren’t all created equal, but they can all be helpful when attempting to understand where things might head from here. From avid bears to giddy bulls, we take a look at some of the experts who are offering their thoughts on the future of interest rates.

What Does the Future Hold When Predicting Interest Rates?

The future of interest rates is a crucial question for everyone, particularly those with debt. Anyone who has a mortgage, a car loan, or a credit card will want to know if the rate they’re paying will increase. If it does, it could make it more difficult to cover expenses. Everyone who is saving for retirement will be interested in how the stock market reacts to these interest rate predictions. Finally, a strong economy needs cheap money to thrive, so many investors will want to know where interest rates are headed in the short and long term. As you can see, interest rate predictions impact nearly everyone, and the future of interest rates is a crucial question for the global economy and financial markets.

Short-Term Interest Rates Will Continue Rising – Fed Sees More Inflation

A strong majority of economists and other experts are predicting that short-term interest rates will rise in the near future. Long-term rates are expected to rise as well, but not as quickly. The Federal Reserve will likely continue to raise short-term rates, particularly in 2022. The Fed sees inflation as a significant threat and they’d like to bring it back down to a healthy level. So, they’ll likely raise rates until inflation is under control. Short-term rates have been below 4% since 2016, and many experts expect them to rise to 5-6% or above in the next year or two.

Long-Term Rates Rise But Don’t Expect a Big Jump…Yet

Long-Term interest rates will rise, but the magnitude of that rise will depend on the health of the economy. Many experts expect them to rise to 5-1/2% or above.. If the economy continues to improve, experts expect long-term rates to rise significantly. If the economy falters, however, long-term rates will likely remain low or fall. Currently, long-term interest rates are still near their lowest levels in 50 years. With so many indicators pointing to a strong economy, long-term rates are expected to rise. How much they rise, however, remains to be seen. Currently, long-term interest rates are around 4.0%, and many experts expect them to rise to about 5.0% or above in the next few years.

Experts Are Divided – Economy Boom or Bust?

Many experts expect the economy to grow at a healthy rate over the next few years. Others, however, expect a bust that could lead to a recession. The difference between these viewpoints comes down to the health of the business and consumer sectors. If business confidence continues to improve, many experts expect the stock market and economy to thrive. If, however, business confidence falls due to a significant event or change, experts expect the economy to falter. Likewise, if consumer confidence continues to improve, many experts expect the economy and stock market to thrive. If, however, consumer confidence falls due to a significant event or change, experts expect the economy to falter. The overall health of the business and consumer sectors will determine the fate of the economy. Experts are divided on what the economy will look like in the next few years.

A Word of Caution for Consumers and Investors

As interest rates rise, the cost of borrowing money also increases. This could put added pressure on households as borrowing becomes more expensive. It could also impact the housing market and reduce the amount of money available for investors to use in the stock market. Furthermore, rising interest rates indicate that there is more optimism about the economy and that the Fed believes it is growing stronger. This could add upward pressure to the stock market by encouraging investors to purchase equities as a way to take advantage of the growing economy. However, it could also cause the stock market to fall if there is too much optimism. There have been many times in the past when investors became too optimistic about the future of the economy and stocks, leading to significant dips in the market.

Bottom Line

Experts are divided on the future of interest rates, as they have been for years. All we can do is continue to monitor these experts’ predictions and see where the economy is headed. A word of caution, however, is that interest rates do not follow a straight path. They fluctuate, often significantly, on a consistent basis. This is why it’s important for consumers and investors to be aware of economic indicators and how they might affect their spending and saving. The future of interest rates may be uncertain, but by understanding what experts are predicting and how it could impact you, you can better prepare and navigate the financial waters.            

Trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results. This matter is intended as a solicitation to trade futures and options.      FEL-PM-220714