Dovish Fed, lower yields spark risk sentiment rally

Michael McKenna

Head of Editorial Content, Saxo Bank

The May 23 Federal Open Market Committee outing was widely received as dovish, with the Federal Reserve signalling that it remains prepared to permit an overshoot of inflation beyond the central bank's 2% target.

The Fed's statement also indicated the potential for a shift in forward guidance, perhaps pointing to a willingness to reconsider the now priced-in hawkish 2018 trajectory.

"We are seeing relief in emerging markets today, both on the Fed and on Turkey's rate hike," reports Saxo Bank head of forex strategy John Hardy in the wake of the Turkish central bank's move to rein in its rapidly depreciating currency.

"US 10-year yields are lower and the curve is steeper," reports Saxo equities head Peter Garnry, pointing to bullish sentiment in stocks surrounding the potential re-emergence of the 'Goldilocks trade' seen in 2017.

Meanwhile, in single shares, Garnry states that Saxo's model remains negative Deutsche Bank despite the bank's move to sharply scale back its US and global equities presence – Deutsche is laying off 25% of its global equities division – in a cost-cutting effort.

Deutsche shares fell 2% on the news.

Finally, Saxo head of commodity strategy Ole Hansen reports that yesterday's surprise surge in US inventories appears to have capped the crude oil rally while gold, he notes, is "consolidating but in need of a spark".

"We see support at $1,286/oz and resistance at $1,299/oz and $1,304/oz, with the latter being key for hedge funds looking to re-establish XAUUSD positions," Hansen says.

US 10-year yields (via Bloomberg):

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