Sunday, November 13, 2016

US inflation expectations are rising

There is no doubt that USD and the election implications will remain the key driver on the forex market. There are two forces that shape US economic projections:
- fiscal stimulus that is an upside risk
- and protectionism that is a downside risk.
But both forces are inflationary, therefore market pricing for Fed hikes is rising. This could fuel more USD strength. I think it is likely that the USD Index will challenge the upper bound of the sideway channel. 

Given how dovish market inflation pricing was there might be still room for yields to rise. Treasuries look extremely bearish.

I struggle to understand how all this would impact equities. There was a rebalancing to traditional sectors, but that wasn't enough for SP500 to challenge the all time high. It is a little bit bearish sign. 

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