Safe Havens Up, CAD Down despite Stock Market Rally


Rates as of 0500 GMT

Market Recap

While fear of inflation has been driving markets recently, things went into reverse yesterday despite yet another surprisingly strong inflation figure, this time for the US producer price index 6.2 yoy vs 5.8 estimate.

In particular, commodity prices dropped sharply.

Of course, this is in the context of a steady rally in almost all classes of commodities this year. One day doesnt mean the end of a rally.

Its hard to say exactly what caused the sudden turnaround in commodities. Some reports blame it on renewed fears about the virus, which hit oil prices particular asp problems arise in key oilimporting countries. Japan said it would expand its state of emergency to more areas, raising risks for the economy in Q2; China reported its first infections in about a month; and India is still reporting over 300k cases a day.

As commodity prices fell, breakeven inflation rates fell too, and bond markets rallied. That helped to propel stocks higher.

You can see how breakevens are following the oil price

Of course, CAD was down along with oil. My favorite chart

Plus, Wednesdays rate advantage for CAD turned around.

What surprised me though is that on this riskon day, with the SP 500 up 1.2 and NASDAQ 0.7, the safehaven CHF and JPY were the top performers. And even with commodities coming off, NZD and AUD were up a bit.

NZD and AUD are trading along with risk sentiment, not commodity prices.

For JPY, just as the rise in US…


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