US equity markets closed on and above record highs, to close out an extremely strong week,, for markets. Growth prospects are high, as the vaccine is rolled out and markets are now overlooking the rise in interest rates. The surge in risk appetite is pushing equities into previously unseen territory and technical nirvana. The University of Michigan, Economic Sentiment index, pointed to happy days. Growth and inflation remain key measures and these will come into focus in the coming week. Central Bank actions and outlooks will be closely scrutinized, in the coming week and this will drive markets. The FOMC meeting will be key, followed closely by the Bank of England and Japan. Expect reinforcement of the QE infinity narrative to keep a lid on interest rates.
The market rally came despite a surge in US Bond Yields, which jumped to over 1.6%, which was the previous trigger to hit equity markets only weeks ago. Bond Yields remain the ‘canary in the mineshaft’. The rally in rates stabilised the US Dollar, with the EUR slipping back to 1.1950 and the Yen trading above 109.00. The surge in commodity prices was offset by the rally in the reserve, pushing the AUD back to 0.7750, while the NZD dropped to 0.7170.
Growth and inflation remain the drivers of interest rates and Central Bank monetary policy. Modern monetary policy and dangerously overblown debt ratios, remain the greatest threat to global markets.