Oversold markets in search of catalysts
? The last few weeks have been gruelling for investors. However, some of the missing ingredients for risk assets to sustainably recover appear to be gradually falling into place.
? US long-term inflation expectations have retraced from April’s multi-decade highs, enabling the 10-year government bond yield to turn lower.
? As a result, the USD index is showing signs of peaking; it failed to rise after Fed Chair Powell and other officials this week warned that they are willing to take US rates into restrictive territory if inflation stays high. This shows how much investors have already factored in the inflation and policy rate outlook in the US.
? Our “Fear and Greed” index and our proprietary measure of market positioning also confirm investors’ currently one-sided positions.
