Indices Tire Despite Fed's Main Street Punch Bowl
Global equities continued to roar on Monday with the S&P 500 wiping out all its losses for the year. In the bigger picture, there are inbalances brewing. Treasury yields were lower at the long end Monday and crude fell. Bears remain fixated on the 200-DMA on VIX, oil's failed break of the March gap and yield's 0.98% resistance.
The yen's Monday rally was a bit of a puzzle. There was talk of short-covering and call buying. US Treasury yields also ticked lower at the long end. Yen repatriation and banking flows are another possibility.
Naturally, we have to consider that risk assets are cycling into safer havens outside of equities but the rally in AUD/USD and decline in USD/CAD doesn't bear that out as both hit post-COVID extremes to start the week.
The Fed also made a surprise announcement about its $600B Main Street lending program that is expected to launch imminently. A host of changes to the program made it easier for the companies to get the money and expanded the interest-free portion to two years from one. There isn't a thought about taking away the punch bowl and if that's the continue message on Wednesday then the euphoric rise in equities will certainly continue.The day ahead is a light one on the US calendar but we will get a better sense of real-money demand for safety with the Treasury auctioning off 10-year notes.
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