Some Profit Taking Today Makes Sense

So long as the Fed retains its max-dovish stance, we should continue to live in the best of both worlds 

The yesterday had its biggest one-day gain since June 2020 and is trading just below all-time highs. This, despite yields repricing some 50bp higher since the start of the year. So I guess a little bit of profit-taking today makes sense as investors are still nursing a bloody nose from last weeks bond market punchup.

So long as the Fed retains its max-dovish stance, we should continue to inhabit the sweet zone revelling in the best of both worlds for equities as US vaccinations continue. A robust economic recovery is in sight, yet max policy support is both on the fiscal and monetary side remains on full throttle. As the underlying everything here—as ever over recent years—is the FED vigilant policy stamp.

In the absence of a mood ring to guide, and even with the super dove duo of Powell & Yellen steering the US policy aircraft carriers, I think the US dollar won’t sell off aggressively in an environment where the US is the only major country able to reach herd immunity.

But this also makes it a challenging slog for EMFX, which should usually thrive amid global risk-on sentiment. The problem is that the dollar is too strong, given the US seems to be head and shoulders above other major countries on vaccinations. Things may change once Europe catches up, but that probably won’t happen until late spring or early summer. Until then, will likely stay in a range, and European equities should continue to underperform.

The market continues to express some much due caution heading into the OPEC meeting as trader draw staws in an attempt to gauge the likely rise in production.

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