Chris Weston

Chris Weston

Chris Weston is our Head of Research and holds over 19 years of experience in the industry. A highly-respected financial services expert, Chris has supported both retail and institutional clients at IG, Merrill Lynch, Credit Suisse and Morgan Stanley, covering research as well as sales and trading roles. His extensive exposure to the FX, equities and fixed income markets puts him in a unique position to provide inspiring insights, research, ideas and risk-management strategies that support every step of your trading journey. Based in Australia, Chris is a well-known global media figure, regularly appearing on Bloomberg, Bloomberg Arabia, Channel News Asia and Sky News Business.

Follow Chris if you’re after informed analysis on currencies, political risks, macro events and cutting-edge trade ideas. Sign up to Chris’ Daily Fix today and receive news to your inbox before the European session opens.

Crude Oil Rebounds, Gold Price Struggles | Oanda

The Trade Off - Ep 25: Inflation, inflation, inflation | Chris Weston (Pepperstone)

Chris Weston Chris Weston 03.06.2022 00:46
Blake and Chris are back for Episode 25 and unpack the effects inflation is having on markets, central bank policies and really, almost everything! They'll be taking a break for two weeks after today's episode as Chris is heading to the UK to co-host Pepperstone talks. Eight experts, including John Bollinger, the creator of Bollinger Bands, will be discussing how they manage risk and trade the headlines. Watch it in person, live online or on demand and sign up for free here: https://bit.ly/3NKK40Q We hope you enjoy the episode and as always, let us know your thoughts, trades and ideas in the comments! 00:00 - Disclaimer and intro 00:53 - Welcome chat: the next two weeks 02:17 - Topical Thunder: Inflation 05:42 - Stocks 09:08 - ECB Policy 12:22 - Gasoline/Petrol 15:47 - That's a Setup: USD 18:03 - EURUSD 20:23 - Wheat 22:45 - JPY 25:11 - Westy's Play of the Day: GBPCAD 26:33 - Blake's Play of the Day: Crude 27:36 - Wrap-up Prefer to listen rather than watch? The Trade Off is also a podcast! Listen either Apple Podcasts or Spotify. 🎧 Apple Podcast: https://podcasts.apple.com/au/podcast... Spotify: https://open.spotify.com/show/7gzvAJx... ➡️ Follow us on Telegram for daily market news and insights: https://t.me/s/PepperstoneFX 👉 Subscribe to Chris Weston's Daily Fix newsletter: https://cloud.go.pepperstone.com/join... Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information provided here, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted. #fx​​​​​​​​​​​​​ #trading​​​​​​​​​​​​​ #CFDs
Poland’s central bank raises rates by another 75 basis points

The Trade Off Ep 23 - Market sentiment, crypto, rates and more! | Chris Weston

Chris Weston Chris Weston 20.05.2022 11:12
Blake and Chris are back in another 'from home' episode! Markets are looking increasingly bleak and our hosts are looking for nuggets for our community of traders. We talk current markets and look at a wide range of asset classes, both fundamental and technical analyses and what you need to know about trading this week.   00:00 - Disclaimer and intro 01:42 - Welcome chat: Numb to volatility? 03:19 - Topical Thunder: Market sentiment 07:03 - Crypto 10:47 - Cuts 14:13 - Safe havens: Gold, Bonds & USD 18:04 - That's a Setup: US500 20:40 - 10Yr US Treasury 22:14 - EURUSD 25:28 - ZAR 28:06 - Westy's Play of the Day: Long/Short idea 29:19 - Blake's Play of the Day: Short BTCUSD 30:26 - Wrap-up   Prefer to listen rather than watch? The Trade Off is also a podcast! Listen either Apple Podcasts or Spotify. Apple Podcast: https://podcasts.apple.com/au/podcast... Spotify: https://open.spotify.com/show/7gzvAJx... Looking for some in-depth how-tos for scalping the FX market? Check out the next week's free FX Evolution webinar on scalping FX majors right here on our channel: https://youtu.be/Xk7wh8fYIWw Follow us on Telegram for daily market news and insights: https://t.me/s/PepperstoneFX Subscribe to Chris Weston's Daily Fix newsletter: https://cloud.go.pepperstone.com/join... The Trade Off is powered by Pepperstone. Pepperstone is an online FX/CFD broker providing traders across the globe with cutting-edge technology to trade the world’s markets. We’re driven to provide traders with low-cost pricing across all instruments including FX and CFDs (crypto, commodities, indices). Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information provided here, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted. #fx #trading #CFDs  
Global Markets In Times Of Affection Of Situation In Eastern Europe

On the radar this week...

Chris Weston Chris Weston 22.11.2021 08:18
Powell vs Brainard Fed chair nomination  Covid trends and restrictions in Europe US core PCE inflation (Thursday at 2 am AEDT) RBNZ and Riksbank central bank meeting US cash markets shut Thursday for Thanksgiving (Pepperstone US equity indices still open)  Eurozone PMI (Tuesday 20:00aedt) – ECB speakers in play BoE speakers to drive the GBP – will they cast doubt on a December hike? With Covid risks on the rise in Europe and ultimately restrictions being implemented we’ve seen renewed selling interest in the EUR, and the oil-exporting currencies (NOK, CAD, MXN). Certainly, the NOK was the weakest G10 currency last week, and GBPNOK has been a great long position – a pair to trade this week, but consider it is up for 9 straight days and has appreciated 5.2% since late October.  I questioned last week if the divergence in EURCHF plays out, and the break of 1.05 negates that, suggesting staying short this cross for now as the CHF is still a preferred safe-haven.  EURUSD has been in free-fall EURUSD has been in free-fall and will likely get the lion’s share of attention from clients looking for a play on growing restrictions and tensions across Europe. The pair has lost 3.5% since rejecting the 50-day MA on 28 Oct and has consistently been printing lower lows since May – predominantly driven by central bank divergence and a growing premium of 2-year US Treasuries over German 2yr - with the spread blowing out from 78bp to 128bp, in favour of USD. For momentum, trend followers and tactical traders, short EUR remains attractive here.  It will be interesting to see if we see any pickup in shorting activity in EU equities – notably the GER40, with the German govt warning of lockdowns ahead. A market at all-time highs (like the GER40) is a tough one to short, but if this starts to roll over then I’d go along for a day trade. There is a raft of ECB speakers also to focus on, notably with President Lagarde due to speak on Friday.  Playing restrictions through crude While we can play crude moves in the FX, equity and ETF space, outright shorts in crude have been looking compelling. Although we see SpotCrude now sitting on huge horizontal support and a break here brings in the 50-day MA. Of course, as oil and gasoline fall, the prospect of a release of the SPR (Strategic Petroleum Reserves) diminishes, however, the Biden administration could use this move lower move to their advantage and capitalize to keep the pressure on.  (SpotCrude daily) A rise in restrictions also means market neutral strategies (long/short) should continue to work, and long tech/short energy has been popular. We can express this in our ETF complex, with the XOP ETF (oil and gas explorers) -8.1% last week and that works as a high beta short leg. Long IUSG (growth) or the QQQ ETF against this would be a good proxy on the opposing leg. In fact, looking at the moves in Apple, Nvidia, Alphabet and Amazon, and we can see these ‘safe haven’ stocks are working well again, as is Tesla although for different reasons.  Stocks for the trend-followers For the ‘buy strong’ crowd, I have scanned our equity universe for names above both their 5- and 20-day MA AND at 52-week highs. Pull up a daily chart of any of these names - they should nearly always start at the bottom left, and end top right. Playing the RBNZ meeting tactically By way of event risks, the RBNZ meeting (Wed 12:00 AEDT) is one of the more interesting events to focus on. Will the RBNZ raise by 25bp or 50bp? That is the question, and of 19 calls from economists (surveyed by Bloomberg) we see 17 calling for a 25bp hike – yet the markets are fully pricing not just a 25bp hike but a 43% chance of 50bp – from a very simplistic perceptive if the RBNZ hike by ‘just’ 25bp, choosing a path of least regret, then we could see a quick 25- to 30-pip move lower in the NZD. The focus then turns to the outlook and whether the 8 further hikes priced over the coming 12 months seems to be one shared by the RBNZ.  Traders have been keen to play NZD strength via AUD, as it is more a relative play and doesn’t carry the risk on/off vibe, which you get with the USD and JPY. I’d be using strength in AUDNZD as an opportunity to initiate shorts, especially with views that RBNZ Gov Orr could talk up the possibility of inter-meeting rate hikes.  GBP to be guided by the BoE Chief The GBP is always a play clients gravitate to, with GBPUSD and EURGBP always two of the most actively traded instruments in our universe. A 15bp hike is priced for the 16 Dec BoE meeting after last week’s UK employment and inflation data, but consider we also get UK PMI data (Tuesday 20:30 AEDT), and arguably, more importantly, speeches from BoE Governor Bailey and chief economist Huw Pill – perhaps this time around expectations of hikes can be better guided – although, a bit of uncertainty into central bank meetings is very pre-2008 and makes things a little spicy/interesting.  (BoE speakers this week) GBPUSD 1-week implied volatility is hardly screaming movement, and at 6.5% sits at the 10th percentile of its 12-month range. The implied move is close to 130pips, so the range at this juncture (with a 68.2% level of confidence), although I multiple this by 0.8 to get closer to the options breakeven rate. So at this stage, 100 pips (higher or lower) is the sort of move the street is looking for over the coming five days, putting a range of 1.3557 to 1.3349 in play – one for the mean reversion players. Personally, I would let it run a bit as that volatility seems a little low, and a break of 1.3400 could see volatility pick up. I’d certainly be looking for downside if that gave way.  Happy trading.
It’s the most important job in finance...

It’s the most important job in finance...

Chris Weston Chris Weston 19.11.2021 08:03
It’s the most important job in finance, but the focus falls on whether Jerome Powell, whose term as Fed Chair expires in Feb 2022, is reappointed or whether he is replaced by Lael Brainard, or perhaps even Raphael Bostic. The earlier talk was this decision was slated before Thanksgiving (25 Nov), but the WSJ reported this week that the nomination could be announced over this weekend. The question then of gapping risk for the Monday open is one traders should consider. As the well-used term goes, markets hate uncertainty – and a Brainard appointment, at a time of impending monetary policy change, represents a small rise in uncertainty that many in the market could do without – well, except for those who like volatility which is most short-term traders. A wild December Still, my base case is we are headed into a period of higher volatility regardless, with a wild December ahead of us. Where we see the US Treasury exhausting measures by mid-December and the US debt ceiling potentially becoming problematic, just as the FOMC meeting (16 Dec) sees the central bank likely announce they are accelerating the pace of tapering from $15b to $20-$25b. Expectations of volatility from the Fed meeting should increase after the Nov non-farm payrolls (4 Dec) and then the Nov CPI print (11 Dec) – the latter a genuinely market-moving event. With the Fed due to ramp up the pace of tapering and potentially closing out its QE program far earlier than prior calls for mid-2022, it sets us up for the Fed to start hiking in July or August. The markets currently price just over two hikes over the coming 12 months. Is this the time to change captain? The concern the market naturally holds then is whether this is really the time to be changing the captain of the ship when we’re charging towards choppy waters? And, if the public have such great disdain for inflation - and US inflation is only getting hotter - why replace Powell with someone who most know is slightly more dovish? Brainard, in some market participants minds, could further slow the reaction function of the Fed and rising talk of the Fed being “behind the curve” could see volatility rise. OK, we know Brainard is a Democrat, and we know she is genuine Fed chair material, but when inflation is probably the number one point of contention and the Mid-term elections is in our sights, surely it makes little sense to allow inflation to run even hotter. A Brainard appointment may change the focus to one where the employment mandate is aimed at a greater inclusion – so, despite the headline employment rate headed to 4% in Q1 22, there could be a shift towards more targeted groups and at a simplistic level that could mean keeping rates lower for longer. In some eyes, when inflation is running hot, not just through supply-side issues, but through demand and wages, then rates simply need to go higher, and Powell is more likely to address this sooner. I am not so sure I share the market’s concerns, and I feel Brainard would be no less dovish than Powell, but this is a widely held view in certain circles. Betting sites have Powell as the firm favourite We can see the odds of Brainard getting the gig have beefed up after what was seen as a very positive meeting with the President recently. And we know there have been calls for change at the helm given the recent spate of controversial trading cases at the Fed. While progressives want tougher financial regulation and a Fed that can use policy to address climate change. Despite Brainard’s odds increasing, the market is clearly leaning that Powell gets a second term, and for what it’s worth, I think he should get the gig. The betting markets have Powell as chair at 76% (69% on Predicit) and that is fair, but there is a non-immaterial chance that we do see Biden nominate Brainard, so it certainly needs monitoring. If Lael Brainard does get nominated then the first place to look is short-term US Treasuries, and I’d expect 2-year yields to fall 3-4bp. If yields drop then the USD should follow, especially vs higher beta plays (AUD, NZD, MXN), while we may see some selling in US500 and US2000, with outperformance seen in the NAS100. Gold would probably find buyers and may even take out the recent highs of $1870. Given recent moves in rates and the bull move in USD, I’d argue the market is strongly leaning on a Powell reappointment, so news of him getting the gig may cause limited moves on open – if we do indeed see it announced this weekend. Still, it’s a risk to monitor – but the real issue remains to navigate the event risk in December in what is typically a period of lower participation.
Crypto as a trading vehicle

Crypto as a trading vehicle

Chris Weston Chris Weston 17.11.2021 09:40
Traders continue to be drawn to crypto as a trading vehicle. Not just because of its ability to trend for a prolonged period, or due to the nature of impulsive momentum that traders can identify and jump on. But also, as we’re seeing now with increased two-way opportunities, and for those that will trade the flow long or short.  For those who see crypto as a vehicle to trade and not just for the long-term adoption story that investors tend to want to be involved with, then from a spread/movement (or volatility) basis crypto is one of the best vehicles out there. We’ve seen that case-in-point over the past 24 hours - A rapid flush out of longs in the market has seen $866m liquidated across exchanges - 31% of that in Bitcoin alone. Again, we look to China where authorities are warning SOEs about cryptocurrency mining, broadly detailing they would increase electricity rates and levies for companies still involved here. While China going after the crypto market is obviously not new, it reminds us that increasing the costs associated with crypto is one of the key influence’s governments can utilise to impact the crypto market, as they can with potentially influencing the fiat-to-stable coin transfer.  There has been some focus on the passing of the US infrastructure bill where a provision has been set for the exchange (or “Broker”) to report customer intel to the IRS – clearly not a popular move for those in the US participating in the crypto market, although it won’t kick in until 2024. This becomes somewhat political, given 1 in 10 Americans have bought and sold crypto in the past 12 months. It perhaps doesn’t shock then that a group of US senators are looking at exempting participants who are involved in the development and innovation of the crypto ecosystem. Either way, crypto will react just like any other asset class to news around regulation, and just as investors are inspired by news of innovation, adoption, or efficiencies - regulation will promote short sharp moves lower, as we have seen periodically.  As a trader, these headlines need to be incorporated fully into one’s risk management. Price moves are the immediate red flag, and a sudden move needs to put us on notice. Personally, when I see a move of 3% in Bitcoin or Ethereum within a 30-minute window, I will assess the headlines and the severity of the issue, as we often see a far slower burn to fully discount news than say spot FX. First movers’ advantage in crypto can therefore be genuinely beneficial and while hedge fund algorithmic activity has dramatically increased in this space over the years, with the technology to react to news far quicker than retail traders, it is still as not as efficient as other asset classes.  This can help level the playing field. The cost to movement trade-off  Our flow is predominantly always seen in Bitcoin and Ethereum – and, while we offer 16 coins in total, these two have the best liquidity, and for an average spread of $33 (on Bitcoin), $5.4 (Ethereum) we see the 12-month average high-to-low percentage range at 6.8% and 8.6% respectively over the past 12 months.  Another popular way to see this is the 5-day Average True Range (ATR). In pips, the 5-day ATR in Bitcoin is 3453 – so this is a spread as a percentage of the daily trading range of 0.96%. On our standard account (comm is incorporated into the spread) this same dynamic in EURUSD sits at 0.97%.  So, in essence, on a spread-per-movement basis Bitcoin is comparable to EURUSD and even gold.  The current set-up Bitcoin daily After a move into 58,621 in Bitcoin, we’ve seen the 50-day MA act as support and buyers stepping in. The 28 Oct swing low of 57,762 is also one to consider, and if we were to see a breakdown through the 50 day and the 28 Oct low and Bitcoin could stage a rapid move into 54,000. As it is, this has the feel that we could see some messy two-way action, and it wouldn’t surprise to see 68,000 capping the upside, 57,000 the downside.  Ethereum daily Ethereum has found support into the lower Bollinger band (20-day MA, 2.5 standard deviations) but has broken the channel support it held since late Sept. That doesn’t mean it will collapse, but the markets propensity to follow the trend is over given price is no longer making higher highs. Another where the near-term price action could get messy and chop around with better two-way price moves.  DOT is one that has seen some good volatility of late and another that is holding the 50-day MA for dear life. A close below 39.66 and this could open a deeper move – a factor which could be appealing as we pay 7.5% on shorts.  As always in trading keeping an open mind is key and for those who want to trade crypto rather than HODL, it feels like the stage is set for two-way opportunity.
Strategy sessions - How to trade EURUSD and the EUR crosses

Strategy sessions - How to trade EURUSD and the EUR crosses

Chris Weston Chris Weston 16.11.2021 16:30
The recent EURUSD move could be considered a classic case study for traders, across strategies, and notably for those who cut their craft on timeframes larger than 30 minutes. On one hand, the attraction to own USDs is almost too obvious and that worries me as a USD bull – we have inflation far higher than where the Fed has been forecasting only back in September and unemployment is also trending towards what the Fed considers ‘full employment’. We get the November CPI print on 11 December and that promises to be even hotter than the October print of 6.2% YoY. The Fed meet on 16 December, and in response we should get some punchy upward revisions to their forecasts on labour and inflation. Given the potential revisions on economic projections, it feels incredibly likely that the pace of QE tapering should subsequently accelerate - this sets up an earlier finish for asset purchases and ultimately opens the door to potentially start hiking from as early as May 2022. The Fed’s median projection for the fed funds rate (the dots) in 2022 is for one hike – it’s feasible to believe this lifts to two hikes next year. So, it's straightforward to take a constructive view on the USD, especially when you hear from former Fed officials Bill Dudley and Jeffery Lacker that they think the fed funds rate may need to move to 3% to control inflation. That would get the USD bulls excited, although 3% would probably be seen as a potential policy mistake by many. Year-to-date moves vs the USD Preview (Source: TradingView - Past performance is not indicative of future performance.) The market has some key event risks in its sight and are clearly running a progressively greater short EURUSD position into the Nov CPI print and FOMC meeting – and that has started now. We also have an important ECB meeting (also on the 16 December) and that too could be a volatility event – it promises to be a huge 24 hours for EURUSD and the EUR crosses! We can talk up the USD but looking across the FX universe this appears to be a EUR move, with our EUR spot basket (EURX on MT4/5) at the lowest levels since May 2020. Aside from the JPY, the EUR is the weakest G10 currency in 2021 – and is at the bottom of the pack on a 1-, 3- or 6- month basis – a true momentum play. EURUSD has been at the heart of the falls in our EUR basket and has been predictably well traded by clients. Maybe this is as simple as a central bank divergence play – with the ECB aggressively pushing back on expected rate hikes in 2022, hell-bent on the view that inflation is in fact ‘transitory’. While the Fed, on the other hand, are open-minded to hiking, if it's required, and the market certainly is adamant it will be in 2022 - and could soon be pricing 3 hikes in 2022. Trading diverging monetary policy paths is perhaps the most simplistic form of tactical trading, in essence, it's FX trading 101, and it's working and we’re all witnessing the trend lower. We’re seeing a similar theme play out in EURCAD and EURNZD, and EURCAD is especially interesting as the cross has broken its consolidation range and if we see a hot Canadian CPI print (Thursday 00:00 AEDT) then the market will expect a rate hike in January by the BoC. Diverging monetary policy expectation’s part explains the move in EURCHF, but it clearly doesn’t explain the one-way move in EURJPY from 133.50 to sub-130. As we explain here EURCHF should be on all FX traders’ radars. So the market is clearly happy to sell EURs and the order books at banks would have become quite one-sided. Trend-followers and momentum-based funds, many of them systematic, would have been all over this move lower adding to shorts as price broke level after level. And, while EURUSD implied or realised volatility hasn’t picked up markedly, the rallies from 1.2260 (in May) have been corrective in nature and short-lived Preview (Source: TradingView - Past performance is not indicative of future performance.) The question I'm asking now and noting that US non-farm payrolls, CPI and FOMC meetings are still some way off, is how to best trade the EURUSD in the near term. That's of course determined by strategy – in this case, mean reversion or momentum. To buy EURUSD as a mean reversion play – personally, I feel the counter rallies should be limited so would change to an ultra-short-term moving average (such as the 5-day EMA) over a traditional 20-day MA Leave limit orders to sell into the former downtrend at 1.1415, or take the timeframe in and see the reaction, price action and behaviour into the former trend before initiating shorts Or, just to stay short as a pure momentum trade and have a stop above 1.1464. One way moves and mature trends eventually come to an end, notably when positioning becomes too extreme – over loved consensus trades rarely end well if you’re the last one in. However, while the street is clearly short of EURs, the fundamentals justify this and if heat come out of the move, then it should offer a renewed chance to short as we head into a huge December for FX traders.  That’s how I see it as we head towards a wild December of major event risk.
Technical Analysis - Support And Resistance - Terms You Should Know

Key event risk and front of mind this week...

Chris Weston Chris Weston 16.11.2021 12:15
UK jobless claims (Tuesday 18:00 AEDT) and Oct CPI (Wed 18:00 AEDT) New home prices (today at 12:30 AEDT), Retail sales, industrial production, fixed-asset investment, property investment (all today 13:00 aedt) Aussie Q3 wage data (Wed 11:30 AEDT) RBA gov Lowe speaks (Tues 13:30 AEDT) US retail sales (Wed 00:30 AEDT), Fed speeches all week with the highlight vice-chair Clarida (Sat 04:15 AEDT) The inflation debate is still the hottest ticket in town – it is promoting higher volatility (vol) in rates markets and bonds, with a small pick-up seen in FX volatility (vol). Equity markets are still, however, calm, with the VIX at 16.3% with falling demand to hedge potential drawdown. This divergence in implied vol across asset class remains a key talking point, but there is no doubt that the boat is not yet tipping with correlations among stocks almost at zero, and cyclical sectors (of the S&P500) still holding up well vs defensives. If the US high yield credit spread accelerated above 273bp above the US 10yr Treasury (currently 267bp), then again, I think equities would be a better sell.  Now this dynamic may change, especially if the debt ceiling comes into play in mid-Dec…but what are the signs to look for over a medium-term?  A higher vol regime will make conditions far more prosperous for equity short-sellers and change the dynamics in FX markets, with renewed downside demand for high beta FX (AUD, NZD, CAD, and MXN). The USD will turn from one being driven by pro-cyclical forces – i.e. relative economics and rate settings - to one sought for safe-haven demand, with the JPY also benefiting.  (Implied volatility benchmarks across asset class) Firstly, I would start with the rates markets – we can see a bit over 2 hikes priced into US fed funds future by the end-2022, with rates ‘lift off’ starting in July. I think if we priced in over 3 hikes in 2022 it could become more problematic for risk assets. Looking out the Eurodollar rates curve, we see a reasonably aggressive pace of hikes in 2022 and 2023, but then the pace markedly declines with barely anything priced for 2024 and 2025. In essence, the market sees hikes as front-loaded suggesting the Fed are in fact not dramatically behind the curve – a factor that is one of the core debates in macro.  We see an 89bp differential between the Eurodollar Dec 2025 and Dec 2022 futures contracts – if this moves back to say 140bp then this could be the market feeling that inflation is going to be a far greater problem and rate hikes are being more aggressively priced throughout the next four years. (Orange – US 5y5y forward rate, white – Fed’s long-term dot plot projection) Also, if the US 5y5y forward rate (the markets view on the ‘terminal’ fed funds rate – now 1.94%) pushed above 2.50% (the Fed’s long-term dot plot projection), again, I think this would be a trigger for far higher volatility and risk aversion.  A move to 2.50% won't play out overnight, if at all, and we’ll need to see real evidence that the US labour force participation rate is not going above 62%, while unit labour costs stay elevated and supply chains heal at a glacial pace. However, if the forward rate was eyeing 2.5% I think this could be a factor many strategists will point to for the VIX to sustain a move above 20%. The gold market is perhaps one of the more classic signs of inflationary concerns – this is a play on US ‘real’ (adjusted for inflation expectations) rates though, where the combination of a better economy in Q4, record negative US real rates and rising inflation is one the gold bulls will seek out precious metals. The Fed may need to promote a move higher in real rates, but the knock-on effect is they risk the stock market finding sellers – notably in growth stocks. A downside break of -2% in 5yr US real Treasury’s could be the trigger for gold to push into and above $1900.  Many debate the linkage between inflation expectations and the real economy. I’m not sure it matters when people are feeling the effects for themselves, and much has been made of the recent NFIB small business survey and Friday’s University of Michigan consumer sentiment survey, which hit the lowest levels since August 2011.  Clearly inflation is not popular and is increasingly the key political issue – I’d argue if real rates break to new lows this could accelerate inflation hedges, while a move through 2.7% in US 5y5y inflation swaps (currently 2.55%) would also play into the idea that perhaps the Fed, at the very least, need to radically reduce the pace of QE in the December FOMC meeting.  Clearly, the US Nov CPI (released 11 Dec) is going to be a big event for markets to digest and the signs are price pressures will continue to build from the current 6.2% YoY pace.  Crude and gasoline also play a key role in shaping sentiment – Senate Majority Leader Schumer has called on President Biden to release an element of the US’s Strategic Petroleum Reserves (SPR). This is a factor that has been talked up since OPEC rejected the US’s calls to increase output by more than 400k barrels. However, the introduction of Schumer into the mix just adds fuel to the fire and this may weigh on crude. So, a few indictors I am watching that could spur the market into a belief the Fed are genuinely behind the curve – I’d argue the market isn’t there yet, but if the factors I mention don’t show evidence of dissipating then we could see forward rates move to levels that could highlight the Fed need to act far more intently – that is where risk dynamics could markedly change.