US interest rates: Markets are prepared for a Fed rate hike – eToro Tips & Picks
The markets are absorbing the likelihood that the Fed will raise US interest rates next month, reducing investor uncertainty. All eyes are now on the ECB and the Bank of Japan, which are seeking to stimulate economic growth. Mario Draghi announced on Friday that he is determined to increase inflation. This could involve expanding the purchase of bonds across Europe or further reducing bank deposit rates. The markets did not respond particularly favourably to his speech and the euro fell, trading at $1.0607.
The euro may fall again today in response to German GDP figures: if the numbers are lower than expected, the effects will be felt immediately. There are already strong rumours of conflict between Draghi and Bundesbank president Jens Weidmann over monetary policy.
Yesterday’s unscheduled Fed meeting has been seen as another signal that the central bank is ready to up rates, but yet again reiterates the fact that the pace of the increase will be incredibly slow. The meeting, although taking place behind closed doors, seems to be yet another tactic to prepare the markets for the inevitable raise. The markets have been resolute in their performance over the last couple of weeks and it seems that, if the rate rise is to happen, they are ready and willing to take the pressure that comes with it, something the Fed will take great pride from.
ETORO INVESTMENT ANALYST
MATI GREENSPAN
With the Fed about to act and the markets still performing well despite the horrendous terrorist attacks in Paris and Mali, many investors are looking towards the end of the year in a very positive fashion.
The major indices are where the majority of cash is going, with traders on the eToro system piling into the Dow, Dax and S&P 500.
The cash is not going towards the positive end of the markets, however, with the majority taking the view that the indices will not continue to be positive running up to the new year. Sixty-one per cent of clients trading the Dow are short, along with 58 per cent of those trading the S&P. In Europe it is a slightly different story, with 78 per cent long the FTSE 100.