hisah wrote:alutacontinua wrote:0.25% rate hike from the the FED....dot plot indicating 3 rate hikes in 2017.
$DXY rallying towards 102....Yellen Press Conference in a few and i am betting she is going to be very hawkish...Think the question is whether stocks can rally in a Rising Rate Environment......
US equity indices have been hot post election. They needed a breather fed hike or not. The structure is still bullish. Trumponomics as outlined is full of fiscal stimulus. US stocks will keep heading here when the plan is rolled out.
So stocks will keep inflating together with USD at the expense of emerging market.
The sovereign debt crisis is lining up and is getting ignited by the USD dragon! Few currencies will be able to hold their ground vs this dragon. For EM and FM there is nowhere to run as dollar debt unwinds. I have a minimum target of 120 for USDKES by the close of next year (2017).
On the other hand a dollar rally puts the ECB in a conundrum. Do they pursue ZIRP/NIRP in an environment where the euro is crashing? What happens when the euro banks start to collapse like a house of cards? Save them and crash the euro further? In all possibilities, the ECB cannot attempt to save the EU without a serious bailout/helping hand by the Fed and the IMF/WB.
Assuming 2017 is the year the eurozone hits the provebial fan and its problems are exarcebated by the current dollar shortage, can the Fed continue along its rate hike corridor? There will be too much carnage for the Fed to hike with a straight face. This is before the US is beset by its own problems. They promised four hikes in 2016 but only achieved one. It is very possible that they will only effect one or none in 2017 depending on how the tape plays out.
Frankly, I am surprised the US has avoided a recession this long (officially at least). Stocks could keep up the bull run for as long as a year but whenever it runs out of steam the collapse will be spectacular.
The main purpose of the stock market is to make fools of as many people as possible.