The deafening news shocked the whole world yesterday: the British Queen Elizabeth II died peacefully at the age of 96…
Fed’s talks scare investors
Information is not investment advice
Fed’s plans to cut bond-buying sent shivers down investors' spines. Let's find out why.
Some Fed policymakers claimed that they are thinking to cut asset purchases by the end of the year. These days Fed buys bonds at $120 billion a month. However, the most senior central banker Richard Clarida disagreed with them and said that no changes should be made until 2022.
Why is it so important for traders?
Investors are afraid of the taper tantrum. This phrase describes the market panic and instability after US Treasury yields surged in 2013 after the Fed announced its plans to cut bond-buying or in other words claimed future tapering.
Fed buys bonds to increase the amount of money on the market to allow consumers to spend and businesses to invest more. When the market is flooded with dollars, the USD falls.
When the Fed feeds the economy with money for too long, there are unavoidable consequences. When the bank stops injecting additional money, the market becomes volatile, and even panic can ensue.
Just imagine, since the 2008 financial crisis, the Fed had tripled its balance sheet from $1 trillion to $3 trillion by purchasing almost $2 trillion in Treasury bonds. As a result, the Fed had become one of the world’s biggest buyers.
One day, the Fed said it would cut bond-buying (just shared plans, not made it). Investors were negatively shocked as with reduced Fed purchases bond prices would fall. Bond investors sold bonds, the price of bonds dropped as a result. Of course, falling bond prices always mean higher yields, so yields of US Treasuries rose, the US dollar surged as well, and gold plunged.
Fed officials have claimed that they “learned lessons certainly from six or seven years ago” and tapering of bond-buying would be publicly announced well in advance to avoid a surge in Treasury bond yields. Anyway, keep an eye on Fed's annoucements!
After months of pressure from the White House, Saudi Arabia relented and agreed with other OPEC+ members to increase production.
Despite the negative news and worrying headlines, we recommend traders to make mental reframing of the situation. This way, you can look at the market from a different perspective. Let’s observe how you can take advantage of the uncertainties and make the fundamentals work for you!
The US dollar index has all chances of reaching the 2000s high of 120.00.
Many investors treated gold as a protection against inflation. However, last week, gold lost its major support and dropped despite rising inflation. Why did it act like this?
First, "ETH merge" Google requests are on the rise. At the same time, "buy ETH" requests are at their two-year lows, which is quite a negative factor ahead of the vast update. The community either doesn’t believe in the success, or they are following the "buy the rumors – sell the news" rule and waiting for the massive dump after the merge.