Bond yields in the EU and the US nudged up ahead of the Fed policy decision, offering support to USD and holding back gains of equity markets.

The yield on 10-year US T-Notes clings to recent high of 1.646% ahead of the Fed meeting. The biggest question for the Fed is where, in their opinion, is the comfortable level of long-term interest rates, i.e., above what level the Fed will not tolerate an increase in yields and will begin to increase bond purchases, that is, QE. In this matter, the Fed remains evasive to this day, which sets the stage for unabated upside in market interest rates, since over the past decade, Treasury markets got used to rely heavily on clues from the Fed. Lack of guidance creates volatility in bond prices which is itself a factor of downside. Markets hope that the US central bank will provide more insight into its new inflation concept and drop at least a verbal hint that excessive rise in rates won’t be tolerated.

In addition, it will be important to look at the Fed’s updated economic projections and dot plot, as they will serve a basis for expectations about timeline of departure from its ultra-loose credit conditions.

A big disappointment from the data calendar today was the release of Japan foreign trade report. A little less downbeat surprise came from Singapore trade data. Exports of Japan fell by 4.5% in February against the forecast of -0.8%. In Singapore, it rose by 4.5%, falling short of the forecast of 6.6%. Shifts in growth rates of Asian exports is one of the main leading indicators of recovery or downturn in global economy. Fading momentum in the data of "Asian tigers" often forestall corresponding shifts in global growth rates. February slack can be an early flare of global trade growth moving into plateau. By the way, Bloomberg commodity index which tracks change of prices on important commodities, stalled since the end of February after recent spectacular rally:

Yesterday there was also a curious move in the US stockmarket, which fits into the story of moderation of global growth. Recall thatthe vaccine news and Biden's victory in November triggered a shift in investors’preference in the US stock market - the Russell 2000 small cap index ofbusiness cycle-dependent stocks began to outperform SPX and Nasdaq (theso-called rotation from growth stocks to value stocks). If we take the ratio ofNasdaq and Russell 2000 and calculate its one-day relative changes, we can seewhere the beginning of this trend and the first signs of doubt about it are:

On the vaccine optimism in November, the daily change wasabout 5.8%, while on yesterday it dropped -2.45% - one of the first significantdaily falls since November. This could be an early sign of investor cautionabout value stocks performance and ability of the global economy to maintain therecent pace of recovery. Let’s how Powell will try to allay these doubts today.

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