Last week’s driving global market event was Fed Chair Janet Yellen’s March 16 announcement of delayed rate hikes in light of recent market turbulence. This dovish message broadly lifted global asset prices, while USD plunged against major trading partners. Fig. 1 shows a ranking of top cross asset surprises, which span fixed income, foreign currencies and gold.
Fig. 1. FNA Correlations ranking of cross asset outliers (95% confidence level)
US TIPS surprised with a +2.9 standard deviation jump, its biggest daily outlier in 12 months. In a deflationary environment, TIPS have underperformed the broader fixed income universe since 2013. Could this be a positive inflation tipping point? And could this be a negative inflection point for USD? Its recent increased negative correlation with USD could make TIPS an attractive portfolio diversifier. The 3 minute video below discusses key market dynamics arising from last week’s dovish Fed announcement.
Video: A tipping point for TIPS & USD?
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