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Risk appetite refers to an investor's propensity to take risks by purchasing riskier or higher-performing assets, such as stocks, in the financial markets.
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In a situation where the presence of traders is thin and there is negative news on risks from China, as well as a cautious mood ahead of key US data/events, investors may become less inclined to take risks and may tend to hold their positions or even sell their risky assets. In the light of the visit of Taiwanese President Tsai Ing-wen and China’s military exercises near the Taiwan Strait, this could raise concerns in the financial markets as it increases tensions between the US and China. If the situation worsens and triggers a larger conflict, it could affect the financial markets and worsen investors’ risk appetite. It is important to note that Russia and North Korea’s warnings of using nuclear weapons are additional catalysts contributing to the risk-off mood. On the same lines, fears of a global recession are being raised by the US amidst dismal data and easing global hawkish talk. Friday’s US employment report, the NFP, came in stronger, failing to reset the risk-on mood in the markets even as Fed bets have improved and are now suggesting a rate hike of up to 0.25% by May. The reason is attributed to high market expectations suggesting a rate cut by end-2023, according to Fed Fund Futures. Elsewhere, central bankers from Canada and Australia announced a pause in recent rate hikes and supported economic woes. S&P 500 Futures traded slightly lower at around 4,132, halting a two-day uptrend. Moreover, the 10-year and 2-year US Treasury yields remained depressed at near 3.37% and 3.95%, respectively. This caused the benchmark bond coupons to extend losses from the previous day and indicated that the market is shifting to safer investments amid concerns of an economic slowdown. The US Dollar Index (DXY) hit a two-month low, while WTI crude oil prices rose to $80.80 at the time of writing. Gold prices also declined below $2,000 as traders pared back recent gains that had reached a 13-month high. The rise in WTI crude oil prices to $80.80 suggests that oil demand is increasing amid market concerns over supply. Rising crude oil prices can affect production and transportation costs, and ultimately affect the overall prices of goods and services. Gold prices falling below $2,000 suggests that the market may be taking profits after the recent rally. The Easter Monday holiday could limit intraday market movements. However, the latest data on US CPI and FOMC will be crucial for the near-term direction of the market, as risk assets seem to be losing their appeal. Additionally, the start of the earnings season will also be important for traders to watch amid recession woes.
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This analysis is based on fundamental and technical views from trusted sources, not advice or invitation. Always remember that this content is intended to enrich the reader's information. Always use independent research first regarding other forex information to be used as a reference in your trading.
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