Rates as of 0500 GMT
The theme in the market nowadays has been the fight between the market and the central banks over the likely path of monetary policy. Simply put, the market doesnt believe the central banks pledges to keep rates steady until X, Y or Z. Traders think the recovery is proceeding faster than expected and the central bankers are going to find themselves reaching liftoff sooner than they have predicted. Some central banks have been pushing back on this idea however, trying to forestall market movements higher interest rates that offset their efforts at easing financial conditions.
Looking at the performance of the European and US markets yesterday though, it looks as if that issue has been resolved completely. European stocks were up anywhere from 1.6 FTSE 100, CAC 40, DAX to 2.2 OMX Stockholm 30. And in the US, it was danger past, bond market forgotten as the SP 500 jumped 2.4 and the NASDAQ lept 3.0. The rally in the US was broadbased, with every SP 500 sector gaining and the VIX index falling 4.6 points, thereby erasing almost all of the recent rise.
This recovery in risk appetite is somewhat surprising, as the contest between the market and the Fed continues. The market is now discounting a Fed rate hike within the next two years and two full rate hikes by the end of 2023, even though Fed Chair Powell has specifically said he doesnt expect to achieve the conditions necessary to begin hiking rates for at least three years 2024.