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Trading financial products on margin carries a high risk and is not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.

Trading financial products on margin carries a high degree of risk and is not suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your risk.

Your capital is at risk.

Market Insights

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

Daily Insight

Market Talk

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

Stock Index Last Year to Date %
US100 Index 12,562.61 14.83%
VXX 23.93 10.57%
EU Stocks 50 Index 4,119.42 8.59%
FRA40 Index 7,013.14 8.33%
ESP35 Index 8,833.10 7.34%
DAX Stock Index 14,933.38 7.25%
Nikkei 225 Index 26,945.67 3.26%
SPX500 Index 3,951.57 2.92%
FTSE 100 7,460.00 -0.08%
Swiss Market Index 10,643.64 -0.80%
ASX 200 Index 6,898.50 -1.99%
Norway OBX Index 1,060.76 -2.68%
US30 Industrials Average 32,244.58 -2.72%
Hang Seng Index 19,000.71 -3.95%

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.

So, what’s happening in the short term “risk-free” world? Over the last five days:

  • The US 2 year treasury bill yield “risk-free rate” has lost -5.68%
  • The German 2 year government bond yield lost over -14.5%

The chart illustrates the 5 day % moves of the US and German 2 year yields

Stock indices outperforming “risk-free” rate over the last five trading days

The chart illustrates the 5 day % moves of various global stock indices

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

Time: GMT+0 Country/Region Economic Indicator Previous Forecast Actual Units
7:00:00 AM United Kingdom Public Sector Net Borrowing -6.242 - 15.859 GBP
10:00:00 AM Germany ZEW Current Conditions Index -45.1 -46.5 - -
10:00:00 AM Germany ZEW Expectations Index 28.1 18 - -
12:30:00 PM Canada Headline CPI m/m 0.5 - - %
12:30:00 PM Canada Headline CPI y/y 5.9 - - %
2:00:00 PM United States Existing Home Sales 4 4.19 - -

Cross asset commentary:

EUR/USD Price faces very short term (1-13 days) resistance at 1.0760, without a break above the 1.0760s the prospect for the prevailing bullish conditions to remain are reduced. Support at 1.0525 remains a key level and provided price happens to fall lower towards the 1.0525 - 1.0440 area, it is expected that another wave of buyers could enter the market between the 1.0525 - 1.0440 levels. Conclusion: above 1.0760 upside prospects on break above seen towards 1.0823, new buyers could be in the waiting below 1.0525 - 1.0440, however, if support at 1.0440 fails to prove true then the prevailing multi-month uptrend would be at risk of ending.

GBP/USD Bullish conditions seen in play after price broke above the 1.2150 key resistance, opening the prospects for a further price extension towards 1.23 and 1.2450 over the very short term (1-13 days), downside risk below 1.2150 places 1.1990 in view.

Brent crude Oil Crude oil prices remain at risk of further weakness provide price can not hold above the $72.6 pivot, upside resistance at $76.5 which if cleared places $81.65 as prospected upside target for longs, otherwise, a break below $72.6 may support a further downside move towards a test of the December 20th 2021 low near $68.5.

Not investment advice. Past performance does not guarantee or predict future performance.