27th May 2021 Morning Report

U.S. stocks closed with modest gains on the back of comments from Federal Reserve officials that helped dampen concerns about runaway inflation which kept bond yields in check. The 10-year U.S. Treasury traded below the 1.6% level. Tech stocks were among the top performers. These have struggled in recent weeks as bond yields advanced due to rising inflation worries. Such stocks’ future cash flows are discounted at higher rates are particularly sensitive to rising or falling interest rates.

A number of Fed officials have commented in recent days on inflation, maintaining that inflation is transitory and that the bank has the tools slow it down if it begins to run too hot. However, they have indicated that they are closer to starting the debate about tapering, or reducing, its massive fiscal stimulus plan.

Some commentators are sensing that Federal Reserve officials are giving a choreographed message that things are improving, and that they can at least start talking about talking about tightening.

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