Chart of the Day

Equity markets continued to rally yesterday, and it seemed like a more convincing move than the one we discussed in yesterday’s newsletter, given that bond yields rose and the dollar weakened against most currencies. In the bond market, long yields rose the most, which caused the 30-5 year curve to widen to 143 bp in the US, the most since early 2016. Back then, the 30-5 year curves were similar across the advanced economies. But nowadays, it is apparently only in the US where investors have much faith in the very long-run outlook.

Macro

Eurozone GDP growth dropped by 0.7% QoQ amid the latest restrictions, and the surveys there remain far below the levels seen before Covid.

In the UK, realtors’ expectations for house prices have slumped ahead of the re-imposition of transaction taxes.

Brazilian industrial production has recovered more strongly than in many countries.

Markets

The rise in yields yesterday was primarily due to higher inflation expectations, meaning that real yields fell again.

The rebound in equities was seen across the world.

Although the dollar continued to strengthen against the main constituents of the DXY yesterday, it depreciated strongly against most high-beta currencies.

Oil prices joined in the positive moves and rose to their highest since early 2020.

It wasn’t a great day for other commodities, however. Iron ore and copper dropped back - some of the recent weakness here is to do with tightening credit conditions in China.

Similarly, retail investors appear to have given up on the silver trade, although it remains higher than last week, and the gold/silver ratio therefore lower than for most of the past four months.

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