Last week we asked ourselves rhetorically: Given the continuation in oil prices, we ask ourselves when will the market start to realize Fed can´t be tightening as aggressively as (still) priced in.

Below is the US 10-year yield. It has doubled since mid-2016. Recently, US yields have been falling. Given the pace of the equity move lower, maybe one should have expected yields even lower, but 3% is simply a huge level in the US 10-year yield. Watch this level very carefully, as we have the 100 day right at the 3% level (200 day is a bit lower). If we see rates close below the 3% mark, another space of crowded positions could magnify the moves.

According to pundits, oil has no correlation longer term for inflation figures. We leave that to be debated. What is known though, is the fact US 5-year breakeven chart (white) continues trading relatively low compared to the US 10-year yield. With Powell speaking later this week, it could be wise revising where Fed’s most important inflation chart trades.

Fed Funds 30-day January contract has come off hard lately.

The famous dots below. Who knows, maybe after all Powell will listen to Trumps latest advise when it comes to US rates…

We remind ourselves of what the great Wayne Gretsky said:

“I skate to where the puck is going, not where it has been”

Source: charts by Bloomberg