At a time when most central banks are fighting the gravity of deflation, the slew of CPI numbers due this week may offer further clues as to which of the two key central banks have managed to engineer a quicker turn around in their economy. Specifically, April’s CPI from the eurozone due later today, and those of the US on Friday could set the tone for most capital markets in the days ahead. A rebound in consumer prices at a much faster pace in one region over that of the other could set things going the ‘wrong’ way. Particularly in the crowded space of the short eurodollar trade, further risks have started to emerge as this ‘policy divergent or parity’ trade continues to unwind. We may also see a case of ‘first-in-FALSE-out’ for the US. Having taken the lead between the two, the US was the first to jump onto the QE train, and more aggressively. The US was also the first to discontinue the program with confidence supported by an improving series of economic numbers. This belief has been backed by the markets, manifested best in the short eurodollar trade, betting that the greenback will outperform. Over the past month, however, this expectation of a faster US recovery has started to look like a fake out as markets are spooked by poorer numbers released there. On the other hand, the eurozone has been demonstrating better traction in its recovery, with firmer numbers announced. Whether the US is simply going through a soft patch in Q1, or on a back-pedal again, only time and more data points will tell. Indeed if all else fails, we can always blame it on the weather, hoping for the best.


Global bond yields continue to rise against a backdrop of rising US interest rates and a looming Greek tragedy. The adjustment to a post
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