Real interest rates continue to rise
A challenge for equities
There will be no newsletter on Wednesday or Thursday. We’ll be back with a weekly recap on Friday. After that, there will be no newsletter until the new year.
Chart of the Day
Despite some worrying signs on the Omicron front still, with many countries putting in new restrictions, the real 5-year yield in the US continues to rise and is now close to its highest level this year - though still very low at -1.53%. Traders seem to be anticipating a hawkish message from the Fed when it announces its latest policy decision and economic forecasts on Wednesday, with most members of “Team Transitory” (wtih regard to high inflation) waving the white flag in recent months and even members of the Democratic party - who generally favor looser monetary policy than their Republican peers - now calling on the Fed to take action to curb rising prices.
In India, inflation rose to 4.9% in November. The latest wholesale inflation rate was 12.5%.
The Nasdaq fell by 1.4% yesterday as higher real rates and bearish sentiment more generally took its toll. It is now back at its 50-day moving average.
While the S&P 500 tech sector also weakened, it was energy that performed most poorly.
Tech stocks have been hit by the further rise in real yields - though the bigger concern seems to be of overvaluation more generally.
The energy sector fell sharply despite a relatively modest decline in oil prices.
With equities doing poorly and a general risk-off feeling, bond yields also declined in most economies.
Ethereum has been catching down with the earlier declines in bitcoin.
The Baltic Dry Index has bounced a bit lately, while the China freight index remains high.
The yen is still seeking direction amid choppy markets elsewhere - it’s also back in line with its 50-day MA.
Like what you see? Please forward this email to your friends and colleagues, or use the button below to share it on social media. They can also follow us https://twitter.com/macro_daily