By eFXdata — Feb 25 - 09:30 AM
Societe Generale Research notes that equities and FX are learning to live with higher-but-still-low yields.
"In the last month, US 10 year yields have risen by 40bp, but the Australian and New Zealand dollars, and sterling, have still gained more than 3% against the dollar and most major equity indices are higher. Other markets, in short, can live with a move higher in US yields from very low to slightly less low. It's not even that volatile -AUD/USD volatility is in the middle of its 6-month range, and close to its 10year average," SocGen notes.
The thought that a 10-year note yield below 3% could trigger the next recession is worrying on many levels but in the meantime, Jay Powell promises cheap money, the equity market believes him, and the bond market frets, but not TOO much. Until serious inflationary pressures emerge, the underlying picture remains growth-friendly. AUD, NZD and CAD, commodity and housing-sensitive, will remain bid. The dollar will remain offered. And EUR/USD, testing the top of its recent recent micro-range, will eventually break higher.," SocGen adds.
Société Générale Research/Market Commentary