BMO: The Next Phase Of Trading Nears

BMO note that “the next phase of trading in the U.S. rates market is nearing; admittedly a bit quicker than we had previously anticipated. At its essence, today’s FOMC Minutes release has taken all the mystery out of May 4 - aside from which voters choose to dissent. As a point of clarification, we have no urgency per se to ‘move on’ to the next trade in financial markets; at least not outside of an acknowledgment of how quickly new information is absorbed and investors move on to trading the next macro narrative. In the current environment, the next chapter in the cycle will be the process of evaluating how far down the path of policy normalization the Fed can make it before the real economy begins to show the negative fallout from less accommodation in the system. One might suggest it is ‘too soon’ to be fretting about the sustainability of the recovery in light of the strong growth momentum throughout 2021. As a counterpoint, the first quarter was characterized by investors calibrating to a higher inflation profile and acquiring a better sense of the Fed’s reaction function. We’ll argue today’s events have offered the much-sought clarity and as the proverbial dust settles, attention will swiftly shift elsewhere.”