Chart of the Day

In the US, the 5-year inflation breakeven has fallen sharply in the past few weeks as traders react to the hawkish Fed and also price in the downside risks from Omicron. While still high, the move suggests traders are confident that the Fed will follow through with its signal to tighten policy sooner rather than later, and that the current level of interest rates now priced into markets should be enough to tame inflation. That could be a good sign for equities, if it means the further upside for yields is now limited.

Macro

The latest job reports showed the US labor market added just 210,000 jobs in November, while Canada's - with a population just one-tenth as large - added 154,000.

A weighted average of the ISM surveys rose to 71.9 in November. Here's the long-run relationship between the surveys and GDP growth, which looks positive.

The Markit surveys are nowhere near as positive though.

Speculative positioning in cyclical trades often leads the ISM, but has had much impact so far this time.

Markets

Non-commercial traders increased their net long position in the USD last week, to the most net-long since 2019.

Longer-term interest rates in the US and eurozone have both fallen in the past month.

Real US 10-year yields have edged lower in the past week, whereas real 5-year yields have moved higher.

While the MOVE is falling again, the VIX is still rising.

Alongside higher implied equity market volatility, most equity markets had a bad week.

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