Kathleen Brooks, Senior Analyst at City Index joined Zak Mir today, to discuss Interest Rate expectation differentials, “Super”Thursday, Apple (NASDAQ:AAPL) (NASDAQ: APPL) and the dangers ahead for the S&P 500.
Interest Rate expectations show Fed to move before BoE
Starting with a concise look at interest rate expectation differentials, Brooks charted Short Sterling and Fed Funds futures, noting that both contracts reflect interest rate expectations. When prices rise, she noted, this indicates that expectation shave fallen, as they move inversely to yields. Brooks notes that the charts are indicating that the Federal Reserve will be raising rates a long time before the Bank of England, and if the Fed raised rates in September, it could be a full 6 months before the UK were to follow suit.
She notes that prior to Super Thursday, the market had priced in a 70% chance of a rate rise in February in the UK, which has now dropped down to under 50%.
Carney should watch his guidance to the market
Brooks explains that Carney should keep a control over what he says to the markets on UK rates, and believes his previous message on year-end hike was the prime reason why yesterday’s Bank of England’s Minutes were seen as dovish. Looking at GBP/USD, Brooks sees downside potential for the cross below its 200DMA around 1.5380.
S&P 500 remains dangerously imbalanced
Brooks looks at the chart for S&P 500 versus the key stocks guiding it higher, and believes that the index looks risky. She notes that the index has been led higher by a handful of stocks – Apple, Google (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and a few others, and a downturn might be seen in S&P500 if Apple sees a continued lower move. She adds that, a continued fall in Apple stocks ahead might see the the SP500 see a turn from its top, lead to a rise in volatility and even a selloff in the equity markets.
Brooks explains how Apple, has gained an immense popularity among retail investors, and why the stock bodes bad news ahead for the equity index. Apple has grown by 800% since 2009, while the S&P 500 grew 200%. The production and selling of goods makes the Apple stock stand away in front of other tech stocks, and hence Brooks favours the company over others like Amazon, Netflix (NASDAQ:NFLX) and Twitter (NYSE:TWTR).