Yield Curves Flatten, Household Equity Allocations Soar Higher, and Potential Trend Reversals
June 21, 2021 | FIRESIDE CHARTS
The newly hawkish tone from the Fed sent yield curves flatting last week as they continue working to keep rates low… and the effect wasn’t limited to the U.S. Will additional insight be offered when Chairman Powell heads to Capitol Hill tomorrow to discuss the economic recovery? Renewed fears around inflation and rate hikes meanwhile helped push the major indices to close lower Friday and the Dow to have its worst week since October—surely a pain point for many as household equity allocations in the U.S. remain at record highs. Commodities also hit the pause button after this year’s furious rally—is a true trend reversal in the cards or is it just a temporary downshift? All of this, in addition to a still-climbing PPI, is pushing the USD higher. Is it the start of a true rally or just a reactionary head fake?
1. Hawkish Fed speak gave all the markets something to digest. Bonds did the expected in the 1-3 year range, yields rose; but the long end of the curve saw yields decline significantly:
Source: The Chart Store, from 6/21/21
2. Was Thursday and Friday a bit of an over-reaction? Bond curves are flattening across the globe.
Source: The Daily Shot, from 6/21/21
3. As suspected, the Fed was buying in the open market last week to keep rates low:
Source: The Chart Store, from 6/21/21
4. Other central banks are or are preparing to reverse QE as well:
Source: The Daily Shot, from 6/21/21
5. Since the “heard” is all in, is it time to seek the sideline?
Source: Longview Economics/ Macrobond, from 6/21/21
6. “Dr. Copper” along with most commodities also pulled back. Is the rally over or just in a pause?
Source: The Chart Store, from 6/21/21
7. An intermediate-term look at PPI and it’s components:
Source: The Chart Store, from 6/21/21
8. All the talk about inflation and higher rates put a bid under the USD:
Source: The Chart Store, from 6/21/21
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.