Stocks Set For Timeout As Risk Appetite Shows Signs Of Fatigue

By Garfield Reynolds, Bloomberg markets live reporter and strategist

The recent euphoria around stocks may fizzle, as a key indicator of risk appetite seems to be peaking.

This has been a strangely quiet week after the Nvidia-fueled euphoria that took the S&P 500 index and other major gauges to record peaks last Friday. Perhaps this is just a calm moment while investors rebalance into the end of a hectic month, and stocks will storm higher once that is out of the way. Especially if Thursday’s reading on the key inflation gauge the Federal Reserve monitors passes without undue incident.

Still, there is a heavy feeling about the risk rallies that mostly kicked off in November, as investors enter uncharted territory and wonder how high will be too high this time round. In that context the way that a classic proxy for risk appetite has also lost momentum underscores the air of mild angst that seems to be in the air.

The Australian dollar is retreating from its own peak against the Japanese currency — near a 10-year high at 99.06 yen also reached on Friday. Looking simply at foreign-exchange drivers, the Aussie-yen rate looks unlikely to extend its advance too far. Australia’s central bank has probably stopped hiking interest rates and may move to reduce them this year, while the Bank of Japan is seen ending its negative rate regime soon.

That means further gains in stocks and other risk assets would be leaving the Aussie-yen rate behind. Not an impossible task, but perhaps a challenging one.