State of The Markets | Markets Mixed on Hedging FX


Markets mixed on hedging . Major US equities indexes advanced higher on the back of defensive sectors as investors weighed the political turmoil in Washington against the prospect of a fresh fiscal stimulus plan given rising Covid-19 cases. The S&P 500 and Nasdaq was up 0.23% and 0.43% respectively, while the Dow was slightly down by 0.03%. Hedging was observed as investor bid longer-dated bonds, forcing yields to drop, with the 10Y closed at 1.09% compared to 1.13% the day before.

Crude almost hit $54 when Cushing reports showed more than expected reduced inventories, before settled lower around $52.90/bl as concerns on renewed lockdown plague the commodities markets. Gold struggled to advanced higher but remain well bid, underpinned by the reports of rising inflation and more fiscal stimulus from the Joe Biden administration. The yellow metal closed around $1,842.40, given strength in the Greenback.

The global reserve currency settled higher, above the 90.33 mark, on safe-haven flows as investors weigh the new lockdown in China, Europe and South East Asia. Though the commodity currencies remain in demand for the long term, Kiwi especially has suffered setback in the short and medium term accounts. On another note, Euro was under selling pressure after reports that Italy’s coalition government is on a brink of collapse as disputes between ex-premier Renzi and PM Conte escalated. Sterling remain well bid with Swiss in the short term as investors hedged with the safe-haven on any contingencies.


Playing the safe haven battle. Dollar, Swiss and Yen are considered safe-haven currencies. At this point in time, only Dollar comes with positive interest rates 0.25% while swiss at -0.75% and Yen at -0.10%. When the going get rough, Swiss will bid Dollar lower and improved risk sentiments will see Dollar bid higher. Rising momentum and G8 currencies sentiments suggested that medium and long term accounts see higher Dollar/Swiss, while in the short term there is still risk lower given the prospect of a fresh stimulus from the Joe Biden administration. Short-term players may prefer to short while medium and long term may want to wait.

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