This year has been very challenging to the traders since lots of economic and political issues are scheduled in this year. There has been a massive chaos in the financial and stock market since no one sure about the next move of the currency pair or the stock market. Such extreme events created another massive confusion into the mind of traders regarding the Great Rotation idea since stock market is again facing traction in the economic world. The whole market sentiment has been changed to a great extent on the event of the presidential election since Donald trump won the US presidential election which was totally unexpected. On 8th November Donald trump was elected as the US next president which dramatically weaken the value of the global bonds worth near about $2 trillion. On this dramatic event the U.S stock market hit a record high during after the US presidential election result was published.
On 16th November near about $28 billion in flowed occurred in the US economy. On the contrary the biggest outflows of bond also occurred on the same moment which is worth of $18 billion. This is one of most extreme inequality between the stock and bond flow in the economic history. The Great Rotation term was first used by Bank of America in 2011 which generally represents such inequality of cash flow. Leading economist believe that there are possible two reason which might create Great Rotation in the global economy. First of all a tighter U.S jobs market strongly suggest that the U.S economy is doing pretty well and side by side inflation risks are rising. Secondly, for the first time fiscal expansion is going to take place during the financial crisis as Mr. Trump remain highly optimistic about their economic performance. On the contrary Britain’s budget that unveiled $29 billion funds for the infrastructure projected also favored the economic event. If the government implements higher borrowing programs then there is high chance that we will see ultra-low yielding bonds in the near term future.
The present market condition is extremely unpredictable since no one is sure what U.S government is going to do under the supervision of Mr. Trump. There has created a major shifting activity in the financial market. For instance, most of the investors are shifting their hundreds of billions in bonds into stock market for their own safety. But such a major shifting in the bond might create a long-term effect on the global economy and the forex market. This type major change in the investor’s sentiment is most likely to rise the inflation risk of the country. According to the leading economist Luca Paolini Price of Asset Management, this might be a clear indication of the phrase Great Rotation. On such a major economic change Germany is still fighting to overcome their major deflationary pressures.
Back in 2013 the U.S 10 year bond yield rose more than 100 basis point due to tapering program of the FED in their FOMC meeting minutes. From that time its value has been sliding significantly lower creating new records in the financial industry. On the event of such crisis, the upcoming FOMC meeting minute is going to play a major role in stabilizing the world economy. According to the FED interest rate hike monitor tools, there is 91.3% chance that the FED will hike their interest rate in the month of December .The last two-month performance of the US economy was significantly great and the current boost of the green bucks on the event of the prudential election strongly favors rate hike decision in the month of December. To be precise if the FED fails to hike their interest rate in the month of December then the ongoing financial crisis will be further intensified since the investor’s world will have no clue about the major economic steps that the U.S government will take. However, most of the leading hedge firm and economist strongly goes in favor of the rate hike decision in the month of December since it will stabilize the U.S economy in the global world to great extent.
Since the inflation expectations are readjusted, investors think that another rate hike in is necessary in the year 2017 followed by the rate hike in the month of December. But the FED will have a tough time to raise their interest rate in the year 2017 since consumers perceptions will go strongly against their second rate hike decision. The record making inflow in the U.S equity market and out flow from bond is just an indication of the great rotation. The forex market is also reacting violently to this uncertainty and most of the retail forex traders are losing money due to the false spike on the event of the major economic news release. Though there are many different financial assets in the forex market but most of the major pairs are exhibiting unstable movement in the market. In the eyes of trained professional such an event can cause a catastrophic disaster to the world economy. However things might settle down nicely during the next FOMC meeting minutes since the investors will be cautiously picking all the points stated by the FED in their meeting. Experts strongly suggest to stay in the sideline until the market makes a clear decision. Though the U.S presidential election resulted has boosted the green bucks against its all major rivals in the forex industry but traders are cautiously observing the U.S government action since this might drastically affect the strength of the dollar at any moment.