RESEARCH CONTENT
Update to the recent notes that highlighted the increased risk of trend breakouts following widening interest rate differentials. This report highlights moves in Bond markets, FX, Equity, Credit and Commodities, questioning whether breakouts are due to geopolitical risks, where oil continues to range trade, rather than due to the expectations of tighter US monetary policy for longer. A stronger dollar and tight US rates is seldom good for the global assets, especially for those indebted in USD with non-USD cashflows.
With a huge US deficit that needs to be continuously funded every month, rising US government bond yields will undoubtedly raise concerns about the willingness of investors to transfer cash balances into duration. US PCE and activity data is becoming more and more important – unless they weaken and halt the US bond bear market, the risk will rise of a far deeper and more profound market correction to risk assets.