I reckon it is far too early in the recovery cycle for central banks to start tapering talks...
Investors’ insatiable appetite for risk has continued so far this week, with major US indices hitting new record highs and crude oil prices rallying to their best levels since the pandemic. European indices have lagged although the German DAX index has done well, partly because of news the country has extended a fiscal programme aimed at preserving jobs until the end of 2021. We have also seen some weakness for benchmark government bonds and haven gold prices of late, although I don’t necessarily think it is a game-changer.
As bond prices have eased, yields have correspondingly risen. This suggests that bond investors are either not too keen on the idea that Fed Chairman Jerome Powell and other central bank heads will outline an even more accommodative approach to inflation, or they expect the global recovery to pick up steam which would call for tighter monetary policy.
Yet a third and an alternative view is that bond investors are just booking profit and as soon as prices become a little cheap again, they will step in to buy the dip as they have done so for many years now. This is the view I lean more towards to as I think it is far too early in the recovery stage for central banks to signal an end to further easing. Consequently, I am expecting dovish rhetoric from Jay Powell and other central bank heads at the Jackson Hole summit. IF I am correct, then yields and the dollar should resume lower, which in turn will likely support gold and silver.
Source: TradingView.com and ThinkMarkets
The 10-year US bond yields have broken a short-term bearish trend, so it is possible we may further correction in the longer-term downtrend. However, the longer-term bearish trend line and the 200-day average are still intact. No market goes up or down in a straight line.