Market gets set for a dovish Fed while investors order up on Domino's
Stock markets moved last night to pre-empt a cautious tone from Chair Yellen when she discusses the Fed’s approach to rate hikes during 2016. Traders appear to have decided that the profit taking and risk off moves of the past two weeks have gone far enough given the likelihood that the Fed will adopt a cautious approach following its first rate hike.
US CPI data for November, underscores the fact that with weak commodity prices and plenty of excess capacity in world economies, there’s no foreseeable need for urgency in the Fed’s rate hike program. Subdued inflation expectations have seen US bond yields remain relatively low. This has diluted the immediate threat to stock market valuations from forecast increases in the Fed rate over the next 12 months.
Energy stocks have been supported today following last night’s rebound in oil. Expectations that BHP will further reduce its capital expenditure on US oil and gas, underscore the fact that further cuts in US production are likely as existing rigs run off. The steady spot iron ore price has helped investor sentiment towards mining stocks on what is likely to be a good session for the market. However, weaker copper prices serve as a reminder that excess supply and moderate demand growth pose an ongoing risk to many commodity markets.
This morning’s rally, clearly demonstrates that investors are happy to stay with a winning strategy and by backing Domino’s management team. Today’s news of Domino’s move into Germany has investors looking for a repeat of their success elsewhere around the world.
Frequently Asked Questions about this Article…
The current outlook suggests that the Federal Reserve, under Chair Yellen, is likely to adopt a cautious approach to interest rate hikes in 2016. This is due to weak commodity prices and excess capacity in world economies, which reduce the urgency for aggressive rate increases.
Subdued inflation expectations have kept US bond yields relatively low. This has lessened the immediate threat to stock market valuations from potential increases in the Federal Reserve's interest rates over the next year.
The recent rebound in oil prices has provided support to energy stocks. This is partly due to expectations that companies like BHP will reduce capital expenditure on US oil and gas, indicating potential cuts in US production as existing rigs are phased out.
The steady spot iron ore price is positively influencing investor sentiment towards mining stocks, contributing to a favorable market session. However, investors remain cautious due to weaker copper prices, which highlight ongoing risks in commodity markets.
Investors are optimistic about Domino's expansion into Germany because they are hopeful for a repeat of the company's successful strategies in other parts of the world. This optimism is reflected in the positive market response to the news.
Excess supply in commodity markets poses risks such as weaker prices and moderate demand growth. This can impact the profitability and valuation of companies involved in these markets, as seen with the current situation in the copper market.
Traders are reacting to the Federal Reserve's cautious approach by moving away from profit-taking and risk-off strategies. They seem to believe that the cautious stance will support stock market valuations in the near term.
In the current market environment, investors are sticking with winning strategies, such as supporting strong management teams like Domino's. They are also focusing on sectors that benefit from current economic conditions, such as energy and mining stocks.
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