Has Inflation Peaked?

In this week's Macro Insight I discussed...

CPI beats expectations last week, but US 10Y bond yields broke lower and equities rallied to new highs led by Tech stocks. The markets unanimous reaction that inflation will in fact be transitory seems to suggest we may be entering a bullish “Goldilocks” scenario with higher growth and lower inflation.

The SPX realised volatility has collapsed as dealer long gamma positions in the 4250/4300 range have pinned the market making it difficult to move away from ket strike levels.

Is this week’s FOMC meeting going to be a market mover? So far the market has bought into the FED’s “transitory” narrative on inflation. If they stick to the script, I would expect more of the same and vols to remain low. If they mention tapering of QE, we could see some volatility and a larger USD bounce, however I think the labour market conditions will allow them to remain easy on policy.

The DXY has formed a base, but failed to really get going. The drop in yields may be counteracting the move but FX markets are extremely sticky particularly for the majors. EM FX has been rallying more on a relative basis.

Oil prices continue their advance as OPEC+ sets a range for 68/75 for H2. As energy exposure has increased, positioning has reduced in metals and grains has come down. Copper finally has a more meaningful pullback breaking below the 50d MA. I am using the dip in copper to start accumulating tactical longs but staying away from the weather sensitive grain markets. Gold also corrects lower as Bitcoin rallies 20% from recent lows. Level to hold in Gold is 1825/1840 to keep uptrend intact.

Filmed on on Tuesday 15th June 2021.

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