Fed and EARL
A large German bank recently offered a chartbook worthy for any/all who — like me — are visual learners. In this chartbook is a chart of the Fed and oil which has then become today’s chart of the day. Seeing this email hit obviously made ME think of this
Inflation related cartoons aside, the bank note and chart def makes one pause to consider implications
CoTD: The Fed and Oil... conscious decoupling?
… Today's CoTD from the pack shows that the Fed's hawkishness is already making an impact. US 5yr, 5yr forward inflation expectations are down -27bps YTD and -43bps from 7 years highs back in October. Interestingly this series has tracked oil consistently over the last 10-15 years. Notwithstanding a dip in oil since Wednesday's seven year plus highs, the two are going in opposite directions in 2022. So the market believes the Fed is going to ultimately win the battle of inflation and is ignoring the fact that oil is continuing its strong 2021 with what is one of the best global asset performances so far in 2022 (+13% YTD).
Nothing without consequence and as always, it’s in the way you use the data. A Fed hawkish pivot in JUNE ignited a bond market rally and as shown above, hawkish pivot impact goes beyond nominals. WHO (or which asset class) gonna win this battle is now (and always was) beyond my paygrade.
Nothing without consequence…keep your head on a swivel!
Food for thought…