If investors think maximum hawkishness in market pricing for the major central banks has been reached, lower yields could be a critical pillar of support for global equities in April.

Global fixed income remained well supported since the start of the month. Further gains in bond markets depend on two factors.

First, whether CPI inflation is close to peaking or if expectations are no longer being surprised by the upside.

Second, slowing global activity could also keep a lid on yields in the near term. March PMIs support this thesis.

The primary near-term risk to any long fixed-income view is a resurgence in energy prices that pressures yield higher. Oil prices are up 5% over the past 24 hours on calls from the US and France for an escalation of sanctions on Russia.


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The RBA shifts away from its persistently dovish stance by omitting the word “patient” in its statement, an implicit signal that a rate hike is possible in May that would coincide with an updated set of forecasts. There was no explicit pushback in the statement on growing market expectations of rate hikes.

The RBA’s relative dovishness to its G10 central bank peers has not held AUD back in recent weeks, with improving terms of trade position more critical in supporting the currency.

Wage inflation has been a key factor holding back RBA hawkishness. That concern is still there: “growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target.” The RBA is trying to maintain a wait-and-see approach and wants “to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates”.

However, a more upbeat read on activity – particularly housing – suggests that a more hawkish inflation outlook will soon materialize.

Originally published by Stephen Innes SPI ASSET MANAGEMENT