Global markets continued to revel in the afterglow of US President Biden pulling off one of the most significant legislative accomplishments of all time – securing a US$1.9 trillion spending bill that will undoubtedly help spur the global economy. For now, markets are pivoting from Curvemageddon meltdown to a stimulus-induced melt-up mode.
Stocks turned a lot perkier and faster than anyone had expected, especially with 10-year bond yields holding above 1.5 % and threatening to move higher in a cause-and-effect reaction to the very same catalyst that is possibly triggering the rallying cry – the stimulus package which prompts the question: what’s going on?
The European Central Bank (ECB) might have stumbled again on the exact nature of its communication to the bond market.
However, for equity investors, the overall message was that central banks are still prepared to act. That’s a powerful force for the growth names.
But with yields nudging higher, it suggests there will likely remain some hesitation ahead of the FOMC next week. Indeed, we’re heading into a very volatile period, with the March 16-17 FOMC meeting looming as a trigger for a renewed sell-off in US rates.
But stick with the higher yields trade. Economic data, including realized inflation, is likely to continue strengthening from here.
It should be an absorbing day in Asian markets after yesterday’s equity bounce driven mainly by mainland China, which got a boost from better credit growth numbers and Premier Li’s speech sticking to the script that we’re not going to see a rapid change in China’s policy direction.
US Fed and dot plot
US Federal Reserve members will be updating their outlooks at next week’s FOMC meeting (Mar 17), which will now include a US$19 trillion fiscal stimulus package.
In December, there were 5 dots for lift-off by 2023 and while economists are debating whether 2-3 dot to join them, which would keep the median dots at no hike, it is a close call. But 4 dots showing liftoff would bring the median dot to a hike in 2023. This could be the sort of hint the market would take as an approaching taper signal.
And while the odds of this happening are pretty low, even if it doesn’t happen at this meeting, it is still just a matter of time.
Oil prices rebound
After a few days of consolidation post-OPEC+, there has been a strong rebound in oil prices driven by gasoline and refined products signalling that economic recovery moves in full swing.
Oil prices roar to the sound of ringing gas pump counters as according to the US Department of Transportation, more and more folks take the highways ahead of what is likely to be the biggest pent up driving season on record as the US could reach herd immunity from Covid-19 by summer vacation time.
The market remains tight and global supplies will continue to draw until OPEC+ members change their output stance. Backwardation continues to generate +positive carry for holding length further along the curve.
Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi