Markets up as New York Fed hints at 2015 hikes

Asian stocks have followed the lead of Wall Street and posted gains in a strong session to make sure the week has started off on a much better note than it finished on Friday. Asian stocks managed to post strong gains as the Yen lost ground boosting Japanese exporters. New York Fed Chief Bill Dudley managed to buoy the markets saying that he sees a rebound in growth numbers in the US being enough to see a rate hike in 2015, rather than postponing any move until Q1 2016.

Bill Dudley went on in a speech yesterday to say that he acknowledges the duty of care the Federal Reserve has to global markets and that any effect a hike in interest rates will have on emerging markets can very easily have a knock effect on US interests. This acknowledgement comes as Mr. Dudley seemed to be preparing many for a rate hike in September’s meeting.

However as usual, on one hand he told us that predicted stronger growth figures for the rest of 2015 would probably be enough to convince officials that a 2015 rate hike would work, he then offered the obvious inflationary caveat. Inflation we know is the biggest fear for central banks and is the one unknown that the Fed seemingly cannot predict at the moment. The reliance on the oil price means that we could well see the CPI readings stay too low for longer than expected. Friday’s figure in the US showed this was stagnating somewhat, and without a positive move in the right Direction Janet Yellen is unlikely to want to push for a rate hike in June or September.

Last month Fed policy makers were split on whether to raise rates in June or to wait until a later date, and despite this coming before a weaker payroll number it’s likely to be weaker CPI and low oil prices that are the main drivers, rather than a blip in new jobs created.

Greece approaches Friday’s meeting still a long way from any kind of deal on debt despite asking its public sector departments to hand over cash reserves to help them pay the 1 billion euro debt payment to the IMF due in May. Alexis Tsipras has been warned by the ECB over the weekend that Greece must act now in order to stop the default from happening. However some reports suggest that there are billions of Euros in cash sitting in public bodies that now must be raided. If Greece does not meet this deadline for the first time it is a very real possibility that by the end of the summer Greece will no longer be a part of the Eurozone.

On our Openbook social platform eToro clients have been mixed on the outcome of both of these major stories, and the fact that both a potential US rate hike and potential Greek exit from the Eurozone are happening so close together is making uncertainty rule the major markets. Our investors are still very bullish on the major indices with the DAX still the most popular with 74% of traders long and buying the German market. This shows that despite the negativity around the Greek story, many believe that officials will find a solution and as ever, the can will be kicked down the road so that Greece can pay up and markets can remain in the same bullish trend they have been in for months. However with both stories around at the same time it means that traders are much more worried and trading shorter term positions on currencies and equity plays to avoid any long term exposure to key decisions out of our control.

Ahead of the open we expect to see the FTSE100 open lower by 4 points and the German DAX higher by 20 points.