Trading Insights: Market fear and reality, why the risk-free rate matters

Market Talk

In the backdrop of all the talk of another “crisis”, stock indices are mostly higher year to date

Data as of 01-01-2023 -03-21-2023 8am GMT

The above table illustrates the year to date (YTD) % moves of various global stock indices

What is the risk-free rate?

In the real world, there is no investment that is risk-free. However, in the financial world, it's commonly understood that the closest “risk-free” assets are short term government guarantees i.e. treasury bills, notes, and bonds.

Wall street stock market traders who follow the yields across the bond markets are considered the “smart money”

This general and widely accepted view among professional investors is due to the inverse correlation between bonds and stock prices.

Ever heard the term “follow the money”?

Upcoming Economic Events

If the current banking “crisis” does not get any worse within the next 24 hours then traders should expect a 0.25% US Fed rate hike tomorrow

Wednesday 6pm GMT US Federal Open Markets Committee (The “Fed”) interest rate decision

Commentary: If another bank does not collapse over the next 24 hours it is expected that the Fed will increase its interest rate by 0.25%, which will move the rate from 4.75% to 5%.

• Around 10 days ago the markets were betting on a 0.5% rate hike, but the banking “crisis” which popped up may push the Fed to hike at a slower rate in order to calm the markets

Inflation remains elevated, so it's unlikely that the Fed will end the current rate hiking cycle until the upcoming consumer price index (inflation) and job market signals that a slowdown in rate hikes is justified.

Today’s Economic Events