The prior week was very positive overall for financial assets. Boosted by the rise in US inflation and broad market sentiment, the S&P 500 pushed to record highs and the NASDAQ broke back above the 14k level.
US yields continued to trend lower through the week with the 10Y down about 10 BPS to around 1.45% now. The Dollar gained marginally, going a leg up on Friday as volatility (both FX and Equity) was almost unanimously lower. Crude and Natural Gas continued to break higher on concerns of increased demand in H2 2021 and Bitcoin has stayed bid after the selloff in the prior month.
An eventful week ahead for geopolitics too as we come off the G7 meeting on the weekend. The forum was united in its stance against China on human rights abuses and announced a development and financing initiative to counter China's Belt and Road Initiative. This was broadly along the expected lines and a frequent critique of the initiatives lies around a lack of detail on implementation. Next up is the NATO meeting in Brussels today where Biden and the Turkish President Erdogan are scheduled to meet on the sidelines. This could be key in lifting US sanctions if Erdogan stands down on installing Russia's S400 missile system. Finally, Biden and Putin are set to meet face to face in Geneva on Wednesday - which should make for interesting headlines as well.
Closer to the markets, we have the Fed's rate decision this week and they are looking increasingly prescient on the transitory inflation narrative as the yields dip lower. No expectations on the street of a reduction in easing anytime soon and the 'dot plot' is expected to indicate no rate hikes until 2023. We also have rate decisions in Switzerland (expected to hold) and Turkey (political pressure to cut rates but hold expected) this week. Minutes from the recent central bank meetings in Australia and Japan should give some insight into their thinking as well. Markets are expected to be broadly stable with no risk events coming up but there is plenty of opportunity for headline risk in the coming week.
June 14, 2021
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