NEW YORK, Sept 25 — The Federal Reserve’s signal that it will soon unwind its bond buying programme is bolstering the case in financial markets for the so-called reflation trade, which lifted Treasury yields and boosted shares of banks, energy firms and other economically sensitive companies in the early months of 2021.
“Normally, a hawkish turn would be bad for risk-on assets, particularly equities... the fact the Fed is putting this out there signals to the market that the economy is on pretty firm footing,” said Ralph Bassett, head of North American equities at Aberdeen Standard Investments. The benchmark US 10-year yield recently stood at 1.45 per cent, near its highest level since the start of July. Higher yields on Treasuries make some stocks less attractive.
Investors will watch a raft of US economic indicators next week, including durable goods orders and the ISM manufacturing index, as well as the progress of debt ceiling negotiations in Washington. The trend of US coronavirus case counts will also influence financial markets, said Jim Paulsen, chief investment strategist at the Leuthold Group. A Covid-19 resurgence earlier in the year helped undercut forecasts for the US economic rebound.The current seven-day moving average of US case counts now stands at 146,182, a 6.1 per cent increase over the previous seven days, though there was an 1.
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