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Traders were facing a potentially bumpy ride as the markets in Europe opened relatively quietly this morning. A number of market moving events are lying in wait this week which will have to be navigated cautiously. Top of the list is an upcoming interest rate decision from the Federal Reserve.

The Fed represents a major hurdle to the post-election optimism that has been buoying US stocks. Job gains and upward pressure on wages in the US means that the Fed may act to raise US rates sooner than anticipated. The Fed’s two day policy meeting ends on Wednesday, and may be followed by a series of short term rate hikes this year.

Also in play are elections in the Netherlands and the likely decision by an increasingly embattled UK government to officially commence negotiations for an exit from the European Union. The Dutch election sees the nationalist part of Geert Wilders beginning to run out of steam but a strong showing at the polls will raise yet another question market about the future of the Euro and European integration.

Another reminder for the market that the UK is taking another step closer to Brexit by triggering Article 50 could see further selling of sterling assets – expect some trouble ahead for the GBP and higher yields on UK gilts by the end of the week.

All this comes as oil prices finally tumbled, with the market recognising that with US crude stockpiles sitting at an all time high, there was little scope to support a price above $50/bbl.

Where are the bears?

Much of the irrational optimism in the market is being viewed with extreme caution by seasoned investors. Some commodity markets are also trading at all-time highs: we have written previously on the copper market, but cotton too has been having an excellent run.

Short positions across stocks, ETFs and equity futures are at a 10 year low at the moment, but as one energy trader put it last week, “If everyone has the same bet on, there’s only so much room to run through the door when the fire alarm gets pulled.”

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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