Yesterday was an interesting day for markets: (1) US inflation came better than expected at 2.8%, which should have made the bond market happy. However, US treasury yields went up because the odds of a Fed rate cut disappeared (see chart below) after seeing that inflation is not shooting up on a straight line, and we go back to the narrative of big deficits. Major U.S. equity indexes were flat to down, despite the good news on inflation, still worried about tariffs and discounting no support from the Fed. Risk of a recession in the U.S. is on the rise, with uncertainty maxed out, despite avoiding the government shutdown. European equity markets continue to go up, particularly Germany, which is running out of time to approve the $500bn fiscal package before the new parliament is formed. If they don’t get the votes prior to March 25th, it can be a major disappointment not only for a Germany, but for Europe as a whole. Huge demand for equity puts on this side of the pond and calls on the European side. VIX has calmed down to 24, after hitting 29 yesterday, but it may remain elevated for the next few weeks.
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