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Podcast: Commodities are heating up reviving the inflation ghost
The energy in markets are low due to the US Thanksgiving holiday, but a few markets are on the move. Chinese equities are up 1.6% today on government statistics showing industrial profits are up 28% y/y in October. In commodities economic activity and the rebound in China continues to drive copper to a seven-year low. But it is not only spot prices that are showing interesting signs, the average forward curve in commodity futures has shifted into backwardation for the first time since 2014 indicating further potential in commodities. Are rising logistics cost posing a challenge to e-commerce and finally, we take a look at Bitcoin which was selling off hard yesterday on potential regulatory crackdown coming to crypto currencies. Today with Peter Garnry on equities and Ole Hansen on commodities.
Market Quick Take - November 27, 2020
Equities in Asia traded mixed overnight while U.S. Futures - led by the Nasdaq - rose ahead of a holiday shortened trading session for U.S. stocks and bonds. The dollar traded softer on a drop in U.S. bond yields while the yen rose against most major currencies as global coronavirus cases continue to surge higher. Gold and silver remain stuck close to key support, oil trades lower amid tensions ahead of next week's OPEC+ meeting while copper traded near a seven-year high on falling global inventories led by China.
Falling real yields prove that sovereigns are a ticking bomb about to explode
10-year real yields are falling and are pushing investors to higher-yielding junk. We find that US high-yield corporate bonds offer a higher buffer against rising inflation compared to emerging market bonds. US investment-grade corporates which provide an average real yield of around 100bps are barely protecting investors from overshooting inflation. The Federal Reserve's average inflation targeting framework (AIT) might prove a dangerous monetary policy as the economy recovers.
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