To those celebrating, I wish you all a Happy Lunar New Year and a prosperous Year of the Tiger to come!
At the end of last week, markets looked to be in dire straits with the dollar running rampant and risk trades breaking down. Fast forward to three days later, suddenly we're headed in the other direction and back in the earlier range.
So, what gives?
The Fed had a lot to do with driving sentiment at the end of January but for now, markets seem content not to overdo it - especially on the rates front. 2-year Treasury yields seem limited closer to 1.20% and 10-year yields close to 1.90%.
That appears to be where bond sellers are drawing the line until we get a better sense of how the Fed's plans may pan out later in the year.
There were plenty of charts that were looking rather ugly for risk trades but they have turned rather significantly since. That said, whether or not there will be a major upside leg is arguably still up for debate considering the whole debate on the global economy and inflation. For now, the former seems to be sitting comfortably despite omicron worries but the latter remains a big unknown.
We'll have euro area inflation data later today, where the figures are expected to ease - so that might provide some comfort to the ECB and central banks in general.
As we also look towards European trading, the market mood is much calmer and fairly upbeat with S&P 500 futures holding up 0.5% and Nasdaq futures up 1.0%. Bond yields are also relaxing and that will help to provide some added comfort for risk trades in eyeing a more meaningful reversal of any false breakouts.
