A Good Guess Is We Will Have To Get Used To The Fast-Changing Winds Of Inflation
Stephen Innes | Feb 23, 2021 12:15AM ET
We will have to get used to the fast-changing winds of inflation sentiment, hence monetary policy direction. h2 Risk /h2
We will have to get used to the fast-changing winds of inflation, and as such, when the next US rate hike happens. The conflation of these two market risks will likely both crescendo and diminuendo risk appetite for the rest of 2021.
Everything on the screens suggests taper tantrum fears are building, and investor reaction is understandable, even if inflation is still a 2022 issue.
More broadly, the S&P500 or risk markets, in general, are a lot less concerned with the nominal rate rise and much more interested in the mix between real and inflation. In basic terms, rising real rates, or 'the cost of money' are bad for risk; rising break-evens are good.
The real danger in higher Treasury yields is not the Fed or inflation—it's the market's perception of a threat that is likely much greater than anything that might even actualize.
h2 Oil /h2The gradual return of US crude oil production after the weather disruption of last week has done little to erode the bullish view.
Although down from recent highs above $65/b, Brent is still pricing a positive outlook on the macro environment in 2021 and an ongoing tightening of supply and demand.
Next week, the OPEC+ meeting is likely to underscore the tension between the more optimistic view of oil markets espoused by Russia and a few others and the cautious stance of Saudi Arabia. It will be interesting to see whether Saudi Arabia uses its unilateral 1mb/d cut as leverage to encourage Russia and others to delay further increases to production. However, the recent rally in oil will make it challenging to keep the bulls in check.
h2 Forex /h2Sterling continues to leverage on a faster UK COVID-19 rebound while the euro and the Dax where mesmerized today by Germany's IFO expectations index, which came out at 94.2, higher than the forecast of 91.7.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.