Financial markets have been fixated on a singular narrative for nearly two months - that U.S. inflation will be higher than previously expected. This has led to significant movements in Treasury bond yields, the U.S. dollar, and gold prices. However, recent data suggests that this story may be coming to an end. Unraveling the Global PMI Data's Influence on Asset Trends
U.S. Inflation Bets and Market Reactions
For nearly two months, financial markets have been driven by the belief that U.S. inflation would rise. This has pushed Treasury bond yields and the U.S. dollar higher while punishing gold prices. But now, these moves seem to be losing momentum. A stream of upbeat data showed the U.S. economy outpacing the rest of the world, even as the Federal Reserve began a rate cut cycle and President-elect Trump championed trade barriers and migrant deportation. However, the long end of the yield curve has been oscillating in a choppy range this month, with bond markets struggling to further dilute next year's rate cut outlook.The Dilemma of the U.S. Dollar
Since Federal Reserve Chair Jerome Powell adopted a more hawkish stance in a recent policy speech, the U.S. dollar has idled. Price action indicates that speculative appetite has been exhausted. At the same time, gold prices bottomed out and then began to recover, erasing half of the intra-month selloff. This suggests that the market's sentiment towards the U.S. dollar may be changing.Regional Economic Growth Dynamics and PMI Data
Incoming purchasing managers index (PMI) data from S&P Global is expected to show that the U.S. will continue to lead in economic activity growth, while Europe and Japan will remain stagnant. Australia is expected to see a modest pickup. Citigroup's analytics suggest that economic news-flow from non-U.S. economies has quietly improved relative to expectations. The Eurozone, in particular, has shown positive data surprises and may lead to a repositioning in the markets regarding interest rate cuts by the European Central Bank. If Eurozone PMI figures are upbeat, it could have a broader impact on global markets, potentially narrowing yield differentials with other currencies and cooling risk appetite in stock markets. This might even push bonds higher as capital flows seek safer havens.Ilya Spivak, tastylive head of global macro with 15 years of experience in trading strategy, specializes in identifying thematic moves in currencies, commodities, interest rates, and equities. He hosts Macro Money and co-hosts Overtime from Monday to Thursday. @IlyaspivakFor live daily programming, market news, and commentary, visit tastylive or the YouTube channels tastylive (for options traders) and tastyliveTrending for stocks, futures, forex & macro.Trade with a better broker and open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
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