Danske Research discusses the current market conditions and highlights the market's shift to stagflation trades.
"Yesterday, markets switched to something more well known from recent months: the inflation/stagflation trade. With EUR/USD lower, EUR/CHF down and EUR/CAD down - amid a boost to the energy sector (about +3-5%), markets appear to have shifted (yet again) from the last few days of 'peak inflation', towards the 'very mild expansion amid inflation'," Danske notes.
"Indeed, the capacity for rising equities appear low as optimism is quickly transferred to rising yields and commodity prices, which in return, dampen headline equities (especially those with high valuations). This stagflationary theme in markets is well in line with our view that EUR/USD might continue to be weak in the coming years as the terms of trade shock appear quite persistent," Danske adds.