EUR 9.12 For Business Accounts Only

The Morning Track inevitable

- The Morning Track – Inevitable by Bob Savage
http://track.com/articles/the-morning-track-inevitable/

Pricing “inevitable” is never 100% and that is the rub for today. The late evening speech from Fed Governor Brainard sealed the deal for the market as she noted the US economy can handle an interest-rate hike soon. The last “dove” of the FOMC makes clear that the market is right to price in an 80% chance for a US rate hike on March 15. The question is whether it matters anymore for the balancing act of bond yields to equity gains will inevitably kick in – rates matter to markets like FX and commodity prices but only in the fullness of time. The world re-bought the global reflation trade yesterday and lived on the fumes of that surge overnight. Perhaps the best explanation that the inevitability of a Fed hike isn’t at 100% in markets came from the RBNZ Wheeler comment about the greatest source of uncertainty – the US Administration policies and how it relates to global trade. In a zero-sum game, America First means the world is second. The notable losers i
n the equity rally over the last 3 days have been in emerging markets – the MSCI EM is off again last night – with the biggest worry perhaps linked to oil which isn’t any longer buying into the OPEC production cut driving prices over $55. Without oil inflation, many of the trades put on yesterday begin to look less inevitable. The relationship of oil to FX and bonds hasn’t been great but it seems to be the logical underpinning driving the EU and Asia inflation stories. The role of FX in that seems clear when you look at import prices in Germany or UK. The role of rates in stopping the inflation trade seems less clear and so the shape of yield curves maybe the real play in the weeks ahead but until then we are stuck.