The growth of inflation expectations does not bother Fed, and it is not going to restrain the growth of nominal risk-free rates. Such a conclusion can be made from yesterday's speech by the head of the Fed Jeremy Powell. The main argument is a temporary phenomenon, and "let's focus on the labor market" (the second goal within the mandate). The reaction of the market did not make themselves waiting: the yield of long bonds again pulled up, and the volatility of bets was already over the spent scenario on risky assets, causing a unique corrective movement:
Unique in the sense that it caused a specific market phenomenon, and not the deterioration of economic expectations. On the contrary, they are in perfect order.
The same reaction followed the dollar, only with the sign +.
The Fed clearly made it clear that he wants more inflation before it starts to change something in politics. In this regard, in the March meeting of the Fed there is no place for surprises at all.
Yesterday's speech Powell, in fact, recognized that the Central Bank releases the far end of the yield curve in free swimming. The speech did not even have a necessary minimum - verbal interventions of the type, "we carefully follow the trozeris on the market." Nothing restrains the flight of the yield of 10-pilot at least up to 2%, given the reaction of risky assets, it is difficult to hope for a quick rebound. At best, we get cautious growth attempts, but it is completely unclear that it can prevent further correction in bonds, i.e. Eliminate the main barrier for RISK-ON.
The focus on Trezeris is large auctions of 10 and 30 years, which will be held on 10 and 11 March. Low demand will signal further sales.
Pulled oils into fire and OPEC, which decided not to hurry with increasing production. Dear oil = higher inflationary expectations, and again it is a blow to assets that offer fixed yield, i.e. Bondam.
According to the NFP report, you need to keep in mind the following. Yesterday Powell said that the labor market was still recovered. Paraphrasing, it will take a long time before the strong NFP numbers will be a hint of tightening credit conditions. Therefore, a strong unemployment report today has the potential to strengthen the sale in Bonds and will subjected to a short position on the dollar for additional risk.
Detailed analysis - in today's video border.
Arthur Idiatulin, Tickmill UK Market Observer
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