Equities erase Fed's gains on Thursday.

18/03/2021

Traders paid attention to the FOMC decision yesterday, and boy, they loved it. Risk assets were bought, and the dollar fell strongly. But the optimism did not last for long.

The Fed predicted that the economy would grow 6.5% in 2021, the largest annual jump in GDP since 1984 and a hefty increase from the 4.2% growth projected just three months ago. However, the Fed still doesn't see inflation pressures, despite inflation expectations and most commodities soaring sharply. 

More importantly, the central bank left the 2023 year without any rate hikes in their predictions, another dovish signal. Stocks loved that and roared higher afterward. 

Additionally, the Cboe Volatility Index - VIX - closed below 20, last seen before the pandemic sell-off occurred. The medium-term in the VIX seems bearish, and that is usually a bullish signal.

However, Thursday brought some massive selling for no apparent reason and equity indices erased all of their yesterday's gains. 

The greenback surged, and US yields rocketed higher, with the 10-year yield jumping above 1.7%. Traders realized inflation is coming, and yields will most likely keep going higher, undermining stocks. 
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