The Yield Curve Says No: Macro Charts You Need To Know #25
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Dollar bulls have come roaring back, oil is a whisker away from $90, and US rates remain high. While many may spin this into a “strong economy” narrative, the US yield curve vehemently disagrees.
- USD strength is a cause for concern
- Demand for USDs is clearly increasing around the world, which implies that global USD funding conditions are getting tighter – not a good sign for the world economy
- Commodities aren’t broadly weaker, but commodity currencies, AUD and CAD, are not doing well. Especially CAD which can’t rally vs the USD, even as WTI approaches $90
- Interest rates stay near their recent highs
- BUT, the US yield curve has started to flatten again, and US breakevens continue to tumble
- Both simply aren’t pricing in much potential for long term growth-driven inflation
- Don’t mistake oil’s rally as indicative of a global economic boom; while WTI inches closer to $90, base metals paint a mixed picture
- Copper remains locked in its range, while iron ore has rallied but remains far below last year’s highs
- If oil prices continue to rally, or simply remain where they are, and the US yield curve keeps flattening, conditions can quickly turn stagflationary
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