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Crude Oil Adds Fuel to Inflation Fire - Further Monetary Policy Repricing Ahead?

Published 19/03/2024, 07:34

Stocks rallied on Monday, ahead of an eventful two days. Meanwhile, the market is also busy repricing its rate path for the Fed policy, with Fed Futures now seeing fewer than three rate cuts in 2024.Fed Rate Cuts

This appears to be due to a change in the market outlook for inflation, with 1-year inflation breakevens now at their highest since July 2022 and 1-year inflation swaps continuing to move higher today by 1.1 bps to 2.635%.US Inflation Swap

It looks mainly like this results from gasoline pushing higher again to $2.74.Gasoline Futures-Daily Chart

Alongside that, this also stems from oil moving up and clearing that consolidation zone at around $82.WTI Crude Oil-Daily Chart

Surprisingly, the US 10-year yield has behaved nicely, still below the 4.35% level.

US 10-Yr Bond Yield-Daily Chart

Remember that what matters most about the Fed and rates is that the market is repricing the path of monetary policy, and monetary policy works through financial conditions.

As the market reprices and adjusts, those conditions will tighten, and the tightening of conditions will impact the stock market.

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