With yields having stabilized, investors feel a lot more comfortable about adding risk,
For many, the expectation is that the 10-y Treasury yield will make its way to 2%. As long as it does so gradually, there shouldn't be a problem for risk markets. The 10y run-up above 1.70% and the subsequent pullback to 1.65% are considered indicative of a market that is positioned for higher yields, and price action is likely to be of the "two steps up, one step back" variety.
The S&P is likely to move in tandem, making headway when Treasuries ease back and then consolidating or seeing small profit-taking as yields step up.
Clear Divergence Of Fed Views
In the FOMC March minutes to be published today, investors will scrutinize any differences between the dovish message Chair Jerome Powell presented at the press conference and the arguments presented by those members that saw higher rates in 2023, or brought take-off into 2022.
However, Dallas Fed President Robert Kaplan has effectively just delivered the message: there's a clear divergence of views. Soon after the March meeting, Kaplan identified himself as one of the sooner/higher members. In an interview with The Wall Street Journal, he said that while the economy needs policy support now, when the pandemic abates and more economic progress is made, then reducing stimulus will help sustain growth. A key element of Kaplan's interview was his fear that super-easy policy will ultimately cause imbalances.
And while Powell has done his best to unilaterally drive the narrative, the FOMC minutes will help give a voice to the many—most notably to the 3 new dots now calling for hikes by end-2022. However, there is really only one voice that counts and the market knows Chair Powell has witnessed enough mistakes at the central bank to see that he needs to be overly patient with policy.
Toshiba Deal Could Pressure USDJPY
Private-equity firm CVC has proposed taking Japan's Toshiba (OTC:TOSYY) Corp., private for $20 bn, according to press reports. Private deals at this scale are unusual and almost unheard of in Japan. Big pressure for USD/JPY to absorb, if the deal goes through. There wasn't much currency reaction on the headline itself but looking back over the space of a few hours, JPY dropped from 110.60 to 109.80.
Oil
The whipsaw effect remains in full blow as liquidity was still low across all markets post Easter, which may be exaggerating moves and keeping active oil investors sidelined as volatility rev limiters peak.
I still feel oil traders may find comfort buying dips knowing OPEC+ will closely monitor macro conditions via monthly meetings on the flip side of the coin. There should be little doubt the group will step in to put a floor on the oil price should macro conditions deteriorate.
Dare I say range trade beckons?