On Thursday 19 May 2016, the fed funds futures market was pricing in about a 30 percent chance of a rate hike in June, compared to just 4 percent one week before. Fed’s talk on the strong labor market and the consumption data provide a strong guidance to a raise rate in the next few months. Based on this strong US economy shown from all data, Fed is coming to the 2% inflation target which was never met in the past 7 years. On this side, the rising rate is coming faster than expected. While the market with different view measures the potential turbulence of Brexit and slower global economic growth, especially China.
Federal Reserve Chairwoman Janet Yellen on last Friday said an interest-rate rise may coming in a matter of “months,” as she expected the economy, and importantly, the jobs market, to continue to get better.
“It’s appropriate — and I have said this in the past–for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said, “and probably in the coming months such a move would be appropriate.”
In April, Saudi states to sell off more than 750 billion dollars’ worth of American assets, in respond to the Congress passing a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks. The kingdom holds more than 100 billion of US treasury which makes the selloff would be a tremendous movement that will impact the dollar market. The demand is going up which will appreciate dollar.
With those recent events, the dollar is on way to be more valuable. Clearly, a strong dollar will benefit US residents for cheaper import goods and less expensive international travelling cost. On the contrary, all those multinational corporations listed in US would not like to see this happen. And the coming strong dollar is so fast that companies barely have time to prepare for it.
For those companies, most of the revenue come from oversea market. A strong dollar will transfer the foreign currency dominated revenue into a weak dollar revenue financials for the requested financial reports every quarter. Disappointed result from the financial will both make the investors unsatisfied and put the whole market into fear since all of them are the giants in their industries.
For APPLE, the situation is more serious. Lack of innovated products and slowdown sales in China both call in question for the company. A strong dollar effect will do more favor of the shorts to see a week dollar revenue.
After the raising of rates becomes true this or next quarter, reaction from those big corporations will be the key to lead the market. If bad results finally occur regardless of their terrific job of domestic market, the disappointing financial reports can load more onto the momentum to slump the market.