US equities wiped out market losses, with a dramatic reversal in fortunes, pushing the DOW into historically record territory. The negative sentiment dragging stock markets lower, was the rising interest rates, offering alternative investment options and raising the cost of debt. The positive news is reflected in the economic data, with US New Home Sales jumping 4.3%, while German Q4 GDP numbers beat expectations. The ‘dovish’ testimony from the Federal Reserve Chairman Powell before the Senate Banking Committee yesterday, was shrugged off and bond yields continued to rise. The USD continues to underperform despite the rising interest rates, with the GBP breaking above 1.4100, while the EUR traded 1.2140.
The RBNZ left rates unchanged and QE infinity in place, as expected, but markets took the inaction as a market green light. Rising Bond Yields and surging commodity prices triggered a big rally in the NZD, which spiked to 0.7400, while the AUD lagged around 0.7930. The renewed confidence is reinforced by the roll-out of the vaccine and the resurgent domestic economy. NZ Business Confidence will give an insight into sentiment today, with the continual improvement expected.
Market sentiment is on the rise but major problems of deficit and debt are both the solution and the problem.