Wed. Jan 19th, 2022

He the ink was barely dry in the narrative of rising yields before the news of two explosions in Kabul that killed 12 US military and more than 13 U.S. Afghans reduced equities and bonds, boosting geopolitical risks. As Ashraf pointed out, geopolitical risks weigh on markets when US interests (human / material) are at stake. The last time it happened was in January 2020, when American soldiers were killed during the events in Iran. The US dollar is stronger against all currencies, with the yen the weakest and the CAD the weakest. Initial U.S. unemployment demands rose while the second reading of Q2 GDP fell. We should also mention how U.S. yields initially increased as a result blatant comments from the 3 Fed members (Kaplan, Bullar and George), promising to cut back in Q3 regardless of virus cases. A new FX trade was issued to Premium members.

Markets settled in a bit of calm before Powell’s Jackson Hole speech. The main issues of strength of the yen’s equity and weakness continued on Wednesday, but with less urgency. A larger shift occurred in the sovereign bond market, where yields rose further in weeks in the United States and Germany.

There is no clear catalyst, but it reminds us of the fall in Treasury yields in June / early July that left everyone scratching their heads. It later turned out that the bond market was marked in what would come with the delta.

Is there a new signal production? It’s too early to tell. U.S. 10-year yields rose 4 basis points to 1.34%, which only goes back to August 13 levels and far from 1.60% before the delta.

The obvious catalyst for higher rates is the delta’s best sentiment, but it can also be nervous for Powell to hint at a decline, genuine fears about inflation or economic optimism, and equity rotation.

Technically, there is reason to expect the movement to lengthen. The double bottom, of 1.12% in July / August, has not been tested with lows close to 1.23% last week despite the nerves. A rise above the August high of 1.38% would add to the case of higher rates and, by extension, higher dollars / JPY. However, U.S. 10-year yields must first exceed the 55-DMA of 1.34%.

In trade between Asia and the Pacific, there was another indication of the Bank of Korea, which became the first developed central bank in the pandemic era to raise rates, raising them by 25 points. basic at 0.75%. Economists split early, but rising consumer debt, a hot housing market and high consumer prices caused them to skyrocket. Officials had been pointing to a rate hike since May, but it was delayed with a July lockout.

Could it be a clue as to what comes from the Fed?

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