The Australian dollar firmed last night as US inflation dropped short of expectations and DXY eased and EUR rose as markets fret over another ECB disappointment tomorrow:
DXY breaks out
The Australian dollar jumped across the board:
Australian dollar topped out
Brent and gold made friends:
Oil and gold enemies
Interestingly, base metals kept falling:
Base metals topped out?
So did miners:
Big miners had their run?
EM stocks rebounded but they still look like suicide jumper to me:
Emergin market stocks at the brink
Junk bonds rallied:
High yield debt still fine
Treasuries were bid:
Ain’t no inflation here!
As were stocks. Though tech fell again:
No tech rally for you!
Quite a mix. The key driver was US inflation, of which there was none:
US inflation absent
The key measure is the purple line and it’s still falling. I wouldn’t expect much else until April.
So, is it all over? The bond back-up and the inflation scare and the tech bust? I don’t think so.
First of all, the inflation is not here yet.
Second, BofA:
New interest rate regime emerges: real yield break out to upside on good economic, COVID news February/early March:“good news = bad news” period for fixed income investors; not over yet, just getting started. Surprisingly good news has come on both the economy (379K new jobs in Feb) and COVID (daily case growth rate drops to crisis low of just 0.2%). Meanwhile, more fiscal stimulus on the way. Bond vigilantes returned to drive real 10y yield above the 200d moving average, breaking downtrend in effect since early 2019. Nominal 10y yield is now at 1.56%,up 65 basis points since year-end 2020. The message from bond market: COVID crisis is over; significant re-opening job gains are on the not too distant horizon; passage of additional $1.9 trillion stimulus package will likely boost a US economy on the brink of recovery (6.5%+GDP growth in 2021).
Fed currently has little reason to intervene – investors on their own for now
The Fed currently has little reason to respond to market volatility created by rate shock: monetary, fiscal policy are exceptionally accommodative; financial conditions remain very loose; credit spreads are near post-crisis tights; good economic news is exactly what the Fed is trying to achieve. Reminder: the Fed’s focus is the economy (jobs,inflation), not markets – until meaningful credit spread widening and financial conditions tightening, investors are likely on their own.
1987 bond sell off (culminating in October 1987 crash) replay underway. Sans Fed intervention, disorderly overshoot of 10y yield to 2%-2.5% range now likely this year.
Third, the Biden Administration is already on the move for MOAR:
SCOOP Emerging details @JoeBiden infrastructure plan via @LJMoynihan: Could be as high as $2.5 trillion over 4 years; some public-private partnerships that could leverage government spending. Details will start to leak in coming days as Biden finishes w the passage of stimulus
— Charles Gasparino (@CGasparino) March 10, 2021
SCOOP: @JoeBiden seeking bank buy-in for massive infrastructure spending program, sources tell @FoxBusiness. Point man in effort senior adviser @RepRichmond. Banks stand to make big bucks on the plan and could sway GOP senators who received their campaign $ more now @TeamCavuto
— Charles Gasparino (@CGasparino) March 10, 2021
Ebbs and flows but lower tech, EMs, commodities and AUD ahead as DXY rises.
