Marketmind: "Ok, who leaked the Fed minutes?"

FILE PHOTO: FILE PHOTO: An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo

A look at the day ahead from Julien Ponthus

"Ok, who leaked the Fed minutes?," Sven Henrich, founder of NorthmanTraderm, asked jokingly on twitter after markets suddenly switched to risk-off mode yesterday.

While one would typically expect investors to trade cautiously a day before getting a better sense of what caused the hawkish shift at the U.S. Federal Reserve's June meeting, the market price action was surprisingly decisive.

Government bond yields dropped, the dollar rose, the reflation trade and cyclical stocks got hammered and traders were suddenly ready to pay an extra premium for growth stocks, particularly tech, which sent the Nasdaq to new record highs.

Market participants were hard pressed to find a single catalyst for the mood swing but offered plenty of explanations.

COVID-19 fears (Delta variant surging), peak-growth fears (ISM showing a cooling in U.S. services), the Chinese crackdown on tech companies, falling oil prices (OPEC+ meeting): there was no shortage of possible triggers.

Another view is that the U.S. yield curve flattening, with U.S. 10-year notes dropping to their lowest since February at 1.34%, meant some investors were betting the Fed would tighten its policy pre-emptively to head off inflation.

There's not much left to wait before the Fed minutes are published later on Wednesday. In the meantime, bond markets are calmer. Stock futures in Europe are slightly positive with no palpable sign of yesterday's stress.

That's good news for London's stock market, which faces a test of its capacity to be a hub for fintech post Brexit with the listing of cross-border payments firm Wise.

Key developments that should provide more direction to markets on Wednesday:

- Samsung Electronics flags 53% jump in Q2 profit, tops estimates

- German May industrial output -0.3% m/m in May

- Germany to sell 5 bln euros of 5-year bonds

- UK Halifax fall for first time since January

- Japan coincident index first fall in 3 months

- France May current account

- U.S. May JOLTs job openings

- Thai central bank monetary policy report

- Riksbank deputy governor Henry Ohlsson talk on e-krona

Nasdaq record vs yields https://fingfx.thomsonreuters.com/gfx/mkt/rlgvdrajovo/MicrosoftTeams-image%20(12).png

(Reporting by Julien Ponthus; Editing by Dhara Ranasinghe)

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