USD correction?By Peter Rosenstreich
Markets continue to discount a hawkish Fed: this could flat foot those shorting the USD. USD-G10 currency yield spreads have absolutely blown out: there is a good chance of a near-term USD correction.
In yesterday-today’s Monetary Policy meeting, which will be US Federal Reserve Chair Janet Yellen’s last, no change in interest rates is expected. This is likely to happen at the next meeting of 20-21 March. Today’s public statements will acknowledge that inflation has shifted up, but not materially. Indeed, inflation remains subdued, allowing the Fed to keep its options open. On a rolling 3 month average it is still below the Fed target of 2%.
No crash yetBy Vincent-Frédéric Mivelaz
Though many investors say that equity and commodity assets will suffer in coming months, due to increasing attractiveness of Government bonds, we remain unconvinced that this will push out others than income-seeking bondholders. We think the US Federal Reserve in 2018 will support risk, equities, commodities and US Treasury notes.
Still, American stocks had a poor two days: -1.37% for Dow Jones and -1.09% for S&P 500. This decrease is driven by rising oil production, announcements of health care competition in the US and worries about the US treasuries U-curves. The decline particularly impacted: Healthcare (-2.86%), Energy (-2.07%), Consumer Discretionary (-1.79%) and Information Technology (-1.30%). At 2.71%, 10-year US treasuries are at their highest since March 2014. Investors and fund managers who look for income are trading for less volatility and risk. The 10-year US treasury and Bund differential is now at +2.02%.