US treasury yields rose 4bps and the S&P500 shed 1.3% after Fed Chair Powell said in a Q&A session of his Semi annual testimony to Congress that his outlook for the economy had strengthened since December with the latest data adding to his confidence about inflation quickening. Expectations are now for three full rate increases this year. Tough talking was perhaps to be expected but the Fed will remain data (especially stock market) dependent about these expectations, in our view. Logically, the dollar gained across the board and gold fell in the day’s context. It was again one of these days when once the corrective tone was established very few places were left to hide as stocks, bonds and precious metals fell in concert. This conforts our long held view that in order to be balanced, a diversified portfolio now needs to hold some shorts. Gold outperformed stocks towards the end, still ending 1% lower, nursing half that loss vs. EUR. 

Judging from the recovery from the 10% selloff which was probably the fastest on record, equities got a chance to reach a more balanced stage after yesterday’s correction. And Fed Chair Powel will get a chance to backpedal a little on Thursday for the second leg of his testimony as well. At the same time as EU chief negotiator Barnier critized May’s negotiating stance, eight conservatives entering into rebellion called for the UK to keep a customs union with the EU that could topple May’s slim majority at the House of Commons. May opposes this scenario as hardliners in her government wish to strike trade deals around the world, which would be incompatible with the UK staying in a customs union with the EU. GBP rallied in response (although paradoxically having May toppled may raise the odds of B. Johson taking her place ... which would be clearly pound negative in our view). Jeremy Corbyn backs the idea of a customs union with the EU.

For the whole day and even as stocks were still hovering around unchanged, CHF strength prevailed and EURCHF closed at the lows, below 1.15, opening the possibility to speculate on some large asset shifts from a gorilla in the space which could explain part of the simultaneous equity market loss and CHF strengthening. Oil fell following comments from the IEA head regarding the fast pace of U.S. shale growth which was coupled with the remaining very large (and most likely excessive and vulnerable) net long speculative long position in oil futures. Italian elections are coming over the week end which may explain the recent underperformance of European equities. Thebresult will likely be a hung parliament which in the case of Italy is no surprise and not an outcome to be worried about. 

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