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Latest news from #SaxoStrats
WCU: Commodities drop as FOMC deflates the relation trade
The commodity sector led by grains and industrial metals was heading for one of its biggest weekly losses since the early pandemic panic last March as the reflation trade deflated at a rapid pace after the FOMC signaled it would speed up its expected pace of policy tightening. The market 'bought' the Federal Reserve's view on transitory inflation by sending 10-year inflation expectations down by 25 basis points, thereby reducing the need for commodities as a shield against rising inflation
FX Update: JPY surge the big new surprise.
The move in Fed rate expectations in the wake of the FOMC meeting has largely stuck and continues to support the US dollar, while the interesting new twist is a sudden surge in the Japanese yen, one that has little to do with Bank of Japan meeting overnight and probably far more to do with long US yields coming down sharply despite the focus on the hawkish Fed surprise.
No country for tightening, but captions tell a different story
Inflation is returning to be an influential factor in the Federal Reserve's monetary policy decisions. Thus, an interest rate hike will likely happen as early as this year, regardless of job numbers. However, US treasury yields will continue to trade rangebound between 1.50% to 1.70% until the central bank doesn't engage more actively in tapering talks. US yields will continue to be capped by rotation and the excessive liquidity in money markets. Expect the yield curve 2s10s and especially the 5s30s to continue to bear-flatten as inflationary pressures and interest rate hikes will be concentrated on the front part of the yield curve.
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