Bond Market Anticipates Fed Pause, Global Stocks Rebound

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Bond Market Anticipates Fed Pause, Global Stocks Rebound

Investors anticipate Fed pause as global stocks rebound amid IMF warnings and rising bond yields. Dollar stalls, Bitcoin rebounds.

Global Stocks Await Fed Pause as Dollar Stalls

The global stock market is experiencing a rebound, and bond yields are slightly rising. Traders believe that interest rates will soon reach their peak, even as they expect that the Federal Reserve will further tighten monetary policies in May to address inflation. Meanwhile, gold climbed above the $2,000 level, while oil prices rose despite Chinese inflation data indicating weak demand. Investors are waiting for consumer and producer price data that will be released on Wednesday and Thursday, respectively.

Read More: Are Atypical Bond Tradings a Sign of a Recession?

The Bond Market is Anticipating a Fed Pause

The bond market continues to move higher in price and lower in yield, anticipating a Fed pause in terms of interest rate hikes and a pivot at some point. Futures show that there is a 67.2% likelihood that the Fed will raise rates by 25 basis points to a range of 5.0%-5.25% when policymakers conclude a two-day meeting on May 3. However, markets are pricing the Fed to cut its target rate to 4.392% by December as the economy slows down and potentially enters a recession. Investors are optimistic that the Fed will pause in May, but they are determined to crush inflation. While the yield on benchmark 10-year Treasury notes rose 2.4 basis points to 3.439%, the 10-year German bund’s yield rose 13.1 basis points to 2.311%.

Equity Markets in Europe Rally

Equity markets in Europe rallied after the long four-day Easter holiday, while the S&P 500 traded little changed and the Nasdaq fell. Large U.S. banks are expected to kick off earnings season on Friday and are expected to show a decline in profits. Meanwhile, MSCI’s gauge of stocks across the globe gained 0.35%, and the pan-European STOXX 600 index rose 0.56%. Japan’s blue-chip Nikkei rallied more than 1%.

China’s Consumer Inflation and Investor Morale in the Euro Zone

Data showed that China’s consumer inflation hit an 18-month low, and factory-gate price declines sped up in March as demand remained weak. This bolsters the case for global inflation easing further this year. Meanwhile, investor morale in the euro zone improved in April after a surprise dip in March, according to a survey.

Read More: Asian Stocks Drop Following Collapse of Silicon Valley Bank

Central Banks in South Korea and Canada

South Korea’s central bank held rates steady for a second consecutive meeting on Tuesday, while the Bank of Canada is expected to leave rates unchanged when it meets on Wednesday.

IMF’s Latest World Economic Outlook

The International Monetary Fund’s latest World Economic Outlook suggested that current high rates “are likely to be temporary” and predicted that, once inflation is brought under control, rates in advanced economies would eventually return to pre-pandemic levels. However, the International Monetary Fund on Tuesday trimmed its 2023 global growth outlook slightly as higher interest rates cool activity but warned a severe flare-up of financial system turmoil could slash output to near recessionary levels.

Read More: IMF Managing Director Warns of Impending Global Economic Downturn

Deposits at U.S. Commercial Banks

Deposits at U.S. commercial banks rose near the end of March for the first time in about a month, showing signs of stabilizing after the two largest bank failures since the financial crisis rocked the banking system and rattled depositors, Fed data last week showed. However, experts still believe that the credit risk is to impact both banks and the economy.

Dollar Falls After U.S. Jobs Report

The dollar fell after a strong U.S. jobs report for March showed a resilient labor market, adding to expectations of another Fed rate hike. The data on Friday showed employers added 236,000 jobs while the unemployment rate fell to 3.5%. Meanwhile, Bitcoin touched a fresh 10-month high at $30,000 over the weekend, but it has since fallen back to around $57,000. Some analysts suggest that the recent rebound in Bitcoin’s price is due to increased institutional interest in cryptocurrency.

Read More: Bitcoin vs Gold: The New Debate in Safe-Haven Investing

Global Market Rebounds Amid Anticipation of Fed Pause and IMF Warnings

The global stock market is experiencing a rebound, and investors are anticipating a Fed pause in terms of interest rate hikes. The bond market is also expecting a Fed pause and a pivot at some point, and the equity markets in Europe are rallying. The IMF predicts that high rates are likely to be temporary, but warns that a severe flare-up of financial system turmoil could slash output to near recessionary levels. Meanwhile, deposits at U.S. commercial banks rose at the end of March, and the dollar fell after a strong U.S. jobs report. Bitcoin touched a fresh 10-month high over the weekend but has since fallen back.

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Stephen Fruchs

Stephen Fruchs is a finance contributor on the Trade Oracle platform. His experience is extensive in everything from micro to macroeconomic trends. With a decade of experience in the finance space, Stephen Fruchs provides consistent economic insights into the changing stock market landscape.