Bond rates showed that most major investors in the U.S. economy believe that the Federal Reserve will raise interest rates in December. In what one analyst described as a “bloodbath,” 10 year U.S. and euro zone bond yields were seen increasing to the highest point that they had seen since May of 2016. In England, British yields pointed to the biggest one month gain that’s been seen in more than seven years, and showed no signs of a quick reverse.
The shift to treasury bond purchases away from stocks will likely continue on a gradual basis until a final decision about rates is released in December, granted that the fundamental information keeps the same tone.
The corollary to this is that stock prices around the world have begun to drop sharply as a result of this. Early in Friday, October 28th, morning trading, Asian stocks dropped sharply. The only real winner out of Asia was the Nikkei 225 in Japan. This major index rose by about 0.6 percent on the day, but only thanks to the fact that it was boosted heavily by Japanese financial stocks. These are the companies that would profit most when a U.S. bond rate hike occurs, and investors are poising themselves to take advantage of this. This movement allowed the Nikkei to finish up by 1.5 percent for the week.
It’s also worth noting what this movement is doing as far as influencing the U.S. dollar goes. Compared to the yen, the U.S. dollar had tipped up above its three-month high point, surpassing the “magic” 105 number. For the last couple months, this has been a big psychological barrier to traders, and now that this resistance line has been beaten, the USD/JPY could be an asset with a lot of upward movement. It will be exciting to watch over the next several trading sessions.
In the U.S., the same is likely to happen whenever the winds of change hit after public perception takes a rate hike into account. Already that has begun. The day before Asian stock prices dropped—October 27th—the U.S. market fell significantly, with the only real winners being financials, non-cyclical goods, and the healthcare sector. At first glance, the only one of these three sectors that makes sense is the financial sector. However, thanks to the fact that healthcare coverage companies are currently in the midst of Medicare’s annual election period, and that open enrollment is in occurring, insurance companies are seeing a huge new influx of cash.
That leaves the non-cyclical good sector, which rose by 0.02 percent over the course of the day in question. It could be easy to write this off as a fluke, but that’s not actually what happened, analysts believe. While the bulk of the market was weighing the sector down, it still managed to rise a small amount thanks to the fact that a strong jobless claims report and an upbeat home sales report were recently released. Also, the U.S. gross domestic product report is set to be released soon, and most signs point to the fact that this will be much stronger than the previous quarter’s data. It has investors excited, and more buying than normal occurred in the sector.
Remember that some binary options brokers allow you to predict Federal Reserve actions as an either/or type investment. If you believe that the Fed will raise interest rates—or if there is not enough strong data to support such a raise—then looking at these brokers may be very lucrative to you. Having these types of trade choices in front of you increases your freedom as a trader and makes personal profitability that much more likely.