Sujata Ro shows us a glimpse at what lies ahead for the markets today

Before minutes of the Federal Reserve’s March meeting, Treasury markets were in full selloff mode.

The debate is now on whether or not the Fed will reduce its balance sheet next month, with a half point interest rate increase already in place for May.

The Treasury sold off again on Tuesday after two Fed governors, Lael Brainard of San Francisco Fed Chief Mary Daly were dovish. There was speculation that the next month’s run-off would begin — along with a rate rise.

The 10-year Treasury yields are at their highest point in 3 years. They have increased by 20 basis points over Friday. The Fed is expected to be even more aggressive in fighting inflation. Therefore, the Treasury 2-year/10-year curve, which was inverted for about a week, has now normalized.

It is worth paying attention to the inflation-adjusted Treasury yield. This variable can help you decide how risky it makes sense to invest in stocks or emerging markets.

The ten-year real yields are still negative, but they’re on the way to zero at -0.26%. This is a level not seen since March 2020. They were lower than -1% in March 2020.

Stocks: Tuesday’s Wall Street selloff led by Nasdaq pushed 1.7% lower. However, there is some stabilisation with European shares slightly lower and U.S. Equity futures flatlining.

Europe is facing other issues than just economic recession due to the Russia-Ukraine War. The possibility of Marine Le Pen winning the shock election in France’s presidential elections (April 10th and April 24) has awakened the markets.

One-month ago, the euro fell to an all-time low against the strong dollar. Inflation outlook may suffer from further weakness, especially since factory inflation was likely to have reached 30% in March.

Graphic: Balance sheet- https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrqyqgvm/Pasted%20image%201649228661786.png

Markets should be more informed by key developments on Wednesday

Omicron surge hits China’s service sector PMI hard

In February, German industrial orders declined

-ECB speakers: Executive Board Philip R. Lane; ECB’s Executive Board member Fabio Panetta; ECB’s Executive Board member Isabel Schnabel; ECB Vice President Luis de Guindos

-Fed speakers: Philadelphia President Patrick Harker;  San Francisco Fed president Mary Daly

Polish central bank raises rates by 50bps