I am hesitant to ascribe any particular narrative to markets because they are so overtaken reflexivity at this juncture that noise of covering all signal.
That said, Deutsche has a go at it:
Recent revisions revealed much less progress on taming inflation in late 2022, and the latest January PCE price data re-accelerated to the worrying monthly pace seen last summer. Updating our suite of statistical models, we find that our underlying inflation measures remained flat at historically elevated levels around 3.25-3.5%.
Along with the latest data showing a very resilient labor market, these data on stickier inflation pressures have tilted recent Fed communications in a more hawkish direction with some hawkish-leaning officials opening up the door to a 50bps move at the March meeting and other officials signaling a peak rate higher for longer. With some evidence that r-star may be rising, the appropriate rate level that is “sufficiently restrictive” may be further away than previously thought. These developments are consistent with our expectations that the Fed will continue to hike at the pace of 25bps through July to achieve a higher terminal rate of 5.625%.
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r* is the neutral rate of interest to produce growth without inflation. If the market has taken in its head that r* is higher than supposed then rising yields and stocks are justifiable.
But, if the higher r* is only slightly higher, as Deutsche suggests, then bidding growth at this juncture is classic pennies in front of the steamroller stuff.
If r* is higher in the US than thought, then DXY is going higher and AUD lower.
I am doubtful. Rather, this all appears more like the chop of a classic bear market to me and we will, rather, see the real economy resume its swoon in due course.
In this case, DXY would also rise and AUD fall until stocks price the adjustment.
DXY has been in an uptrend since 2010 and its not appearing to change that trend anytime soon “see the real economy resume its swoon in due course” thats speaking in riddles and an unhelpful comment
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