By Naeem Aslam
US futures and European markets are trading higher Tuesday as traders celebrate the Spanish inflation number, showing that inflation has started to cool down significantly.
The Spanish data also confirmed that the direction of inflation in Spain is also encouraging. This means that there is less pressure on the ECB when they meet in two weeks to decide on their monetary policy.
As for the traders who are focused on US equity markets, they are more focused on the Fed’s next policy move, while they also feel a lot better about the US debt deal, which is in the process of happening now.
Traders know that lawmakers in the US will never let the country default, and now the focus is on the damage control caused by their ‘dance to the debt ceiling’ drama.
Fed rethinks rate hike
The biggest risk for the US stock markets over the coming period is now more associated with the Fed’s monetary policy as the debt ceiling conversations will be out of focus. There are far greater chances for the Fed to increase the interest rate, which means that a further economic slowdown is more than likely.
But traders are optimistic about the earnings, and so far this quarter, the earnings numbers have been great — especially with respect to anything that is associated with AI.
There is no doubt that there is a lot of AI washing taking place — companies are attaching the hype to their efforts to buck the trend.
But the future for AI remains very positive, and the numbers produced by AI-related companies like Nvidia have made things a lot more positive. The stock price for Nvidia is still solid, and so far we have not seen any retracement, with traders chasing the trend or trade.
In terms of valuations for Nvidia, there is no doubt that there is some stretch there, and other companies in this space like Meta are a lot more favourable to look at.
Gold under pressure
In the commodity space, the shining metal is feeling further pressure Tuesday as traders continue to back riskier assets, which is taking some shine away from the precious metal.
Gold traders also know that the Fed is very much itching to increase rates further, and the yield on the two-year Treasury yield is clearly indicating that another rate hike is more than likely to happen.
So, the dollar index continues to pick up momentum, which isn’t that great for the dollar index.
Forex and Turkey
The Turkish Lira has been under tremendous pressure as traders know that Erdogan is back for the third round. There is no doubt that the president has great support among his people, and traders and investors would like to know if the president will change his stance on inflation.
His approach has caused significant damage to the currency, but the president continues to believe that higher inflation will only hurt the people of the country.
The fact that Erdogan is back in office despite some major natural disasters in the country shows that not only the public but also investors back him up as well.
This should bring more support for the Lira, but this may be somewhat of an optimistic approach as short positions on the currency continue to build.
However, President Erdogan has strengthened the country’s political position with its neighbours, especially Saudi Arabia, which has changed the landscape for Turkey all together. With more stability on that front, we are likely to see more prosperity for Turkey.
Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.