Risk-off at the beginning of the week

21.06.2021 11:56|Forex conotoxia.com

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The market appears to be concerned that the Fed normalizing monetary policy will deteriorate the US economy. It is rare for an announcement of interest rate hikes to end with a drop in bond yields, which is because the market is concerned about the outlook for GDP growth and inflation in the long term.

The yield on the 10-year U.S. bond fell to 1.4 percent on Monday, the lowest level since February, and the yield on the 30-year bond fell below 2 percent for the first time in four months. At the same time, 2-year bond yields rose, leading to a flattening of the yield curve, indicating that the peak in GDP growth and inflation may be behind us. The retreat in long-maturity bonds may indicate that investors are less optimistic about economic growth, while the rise in yields on short-maturity bonds, which are most sensitive to interest rate changes, may reflect that a rate hike is widely expected. Meanwhile, this week the US will offer investors $60 billion in 2-year bonds, $61 billion in 5-year bonds and $62 billion in 7-year bonds.

In the financial markets, risk-off, or a move away from riskier assets, began to dominate at the beginning of the week, which was most evident in the Japanese Nikkei index. On Monday, it fell at one point by more than 4 percent to lose just over 3 percent at the end of the session. All this also after the Bank of Japan recently maintained massive monetary stimulus to support the country's economic recovery, while extending the deadline for asset purchase and loan programs introduced last year to channel funds to pandemic-stricken companies. Additionally, on Sunday, the Japanese government decided to end the COVID-19 state of emergency covering Tokyo, Hokkaido, Osaka, and six other prefectures while maintaining emergency in Okinawa for another three weeks.

The week started even worse in the cryptocurrency market, where bitcoin extended losses and fell more than 8 percent below $33,000. The declines seem to be related to the fact that Chinese authorities have expanded their crackdown on cryptocurrencies. Sichuan was the last province to demand the closure of 26 suspected cryptocurrency mining projects by Sunday, meaning that about 90 percent of the bitcoin network's mining capacity in China is set to be shut down. In May, the Chinese government called for bitcoin mining to be curtailed due to concerns about energy consumption. Concerns about potential regulatory scrutiny have also weighed on investor sentiment.

Daniel Kostecki, Chief Analyst Conotoxia Ltd.

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

77.46% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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