Asian equities have a complicated relationship with bonds. The correlations between rising bond yields, steepening yield curves, and real yields swing around over time. Generally, increasing nominal yields have been positive for equities, while rising real yields slightly negative.
The bounce in yields is more damaging to the valuations of growth stocks in the short term. SPI Asset Management backtests for Axi investors suggest, Treasury Yields at 1.5% would mean a 3% ‘fair value’ de-rating for the growth universe from here, 2% yields 10% de-rating and 2.5% yields a 15% de-rating.
Stocks down, bonds down, gold up, ripping, soggy, although improving today on a reflation impulse. But it’s tough to paint a coherent picture of what is going on in FX right now.
My view is that weaker stocks would eventually flow through to more vulnerable commodities and then a stronger . So far, that view is doing the opposite of paying off, but there is no reversion signal just yet as the repricing of the FED curve needs to move about six months to trigger that reversion, so we are not there, however, as the street still feel comfortable riding the reflationary currency boats (, and ) and there is no point trying to push back against Powell ahead of the Humphrey Hawkins where it’s likely to be Taper Talk down chapter 4
Energy continues to dominate price action accross all assets
Energy continues to dominate price action accross all assets which are providing a material boost in breakevens driving the reflation trade higher. and sending the USD lower in concert. And providing a boost to energy stocks and other reflation trade beneficiaries
rebounded on the back of a weaker USD, firmer crude prices, and softer global stock markets, though the US 10y yield was above 1.36% – a one-year high. Bulls pushed the gold price back above the $1800 psychological level.
Gold positioning has become a lot leaner which will not act as much of an overhang as gold remains tethered at the hip to the US dollar.
Cleaner positioning should allow gold to benefit from any pick-up in inflation concerns in the months ahead. The market is focused on Fed Chair ’s Humphrey Hawkins (NASDAQ:) testimony this week; too fast of a rise in inflation might force the Fed to tighten policy too quickly, while a complacent Fed could also mean overheating risks.
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