In the last week, markets have been moving in the spree of interest rates’ rise, with investors trying to decode this outcome and understand whether interest rates will continue to rise and whether this will affect stock prices.
This is generally the case: If interest rates rise due to an impending rise in inflation and a possible tightening by the Fed, then this may indeed have a negative impact on markets. If interest rates rise because the economy is improving, then this is not a negative factor for stock prices. For now, investors do not seem to be sure what exactly is going on.
Rising interest rates do not have a positive impact on the dollar either. Perhaps the dollar’s trajectory provides the answer to the question: how much more could interest rates rise as Fed is determined not to let them move up at least until 2022.
On Thursday, Janet Yellen stressed that achieving full employment is possible within 2022 and this creates the feeling that then a change in Fed’s attitude could be considered. However, this is no longer a critical parameter, as the attitude towards inflation has changed, which could be allowed to move even above 2.0%.
This ignorance has led to an increase in the volatility index curve for the coming months, which shows a particularly high desire for hedging against a fall in the markets, sometime in the coming months.
Goldman Sachs: Rising interest rates could derail emerging markets
Rising interest rates threaten the rally of emerging markets, which is the favorite investment topic of recent months. The expectations for a strong economic growth in America and a big stimulus package were among the key factors that favored the significant growth of emerging markets.
Emerging markets are the most sensitive investment issue in the event of rising inflation. Therefore, according to Goldman Sachs, if the issue of inflation continues to prevail, emerging markets could roll down to lower levels.
As long as the bond market movements remain intense, investors should be careful. The situation will begin to smooth out when these movements are normalized.