Only a bit over two months ago, global investors were wildly risk averse and had a laundry list of concerns to fret, from low oil prices and falling equities to uncertainty about when the Federal Reserve might again be raising rates.
While several fears have faded, there is still enough of a wall of worry to prevent a larger risk-on rally.
First, there has been a significant recovery in oil prices, which allayed a wide array of concerns globally.
West Texas Intermediate, at $43.44 per barrel currently, posted a high of $44.49 earlier, the highest since Nov. 10 on the continuation chart.
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From the 2016 low of $26.05, seen Feb. 11, to today's peak, WTI was up 70.8%, a sizable move.
However, at current levels, the front contract was still off nearly 30% from the 2015 high of $62.58, seen May 6.
Crude prices have come a long way since bottoming in February, with the bounce higher driven by talk of a production freeze at January level by OPEC and non-OPEC members, as well as a larger improvement in risk sentiment.
Even though Sunday's Doha meeting of OPEC and non-OPEC members failed to reach an agreement on a production freeze, the promise of such an agreement ahead of the larger OPEC meeting June 2 in Vienna has kept crude prices from slipping too far.
On the June contract chart, from the $39 low seen Monday morning in Asia, after the Doha meeting, to today's high, WTI is up 14.1%, so that there is some profit-taking is not a surprise given the run-up.
Earlier Thursday, IEA Executive Director Fatih Birol was in Tokyo to address the International Finance and Economic Assessment Council.
"From 2016 to 2021, we expect demand to rise by around 1.2 million barrels per day - slightly higher than the trend seen in the past decade - and it will cross the symbolic level of 100 mb/d in 2019 or 2020," he said.
Regarding supply, "non-OPEC production is expected to decline by 700,000 barrels per day in 2016," which would be the "largest annual decline since 1992," he said.
Birol looked for the market to "come back to balance in 2017" and looked for stock draws "from 2018 onwards," which should lead to "a gradual increase in price levels."
Traders had a hard time seeing WTI moving back into a $45 to $50 range without additional signs of global recovery and instead looked for the front contract to carve out a near-term range, either $35 to $40 or $40 to $45 in coming weeks.
U.S. stocks have bounced back also and have been trading in positive territory on the year for the most part since late March.
At the peak of risk aversion, the S&P 500 posted a low of 1,810.10 on Feb. 11. From the February low to the new 2106 high of 2,111.05 posted April 20, the index was up 16.6%.
At current levels of 2,095, the S&P 500 is up a modest, but respectable 2.5% on the year.
In terms of risk appetite, U.S. Treasury yields tell a less compelling story. Ten-year yields fell to a low of 1.530% February 11, the lowest level since August 2012.
Ten-year yields hold at 1.882% currently, up from the February lows, but well down from the 2.252% high yield seen the first trading day of the year and the 2.323% high posted Dec. 30.
The market was not expecting any surprise at the conclusion of the April 26-27 Federal Reserve meeting, and instead saw June 14-15 as the next likely time for a rate hike.
The decline in U.S. Treasury yields has led to a softer dollar in the past few months, which offered some good news for U.S. manufacturers.
The 2016 high in the dollar-index was seen January 29, at 99.829, and the pair, currently at 94.602, troughed at 93.627, on April 13, a 6.2% decline from its peak.
Stephen Jen, managing partner at SLJ Macro, voiced some surprise at the extent of the rally seen in risk assets in the past few weeks.
"This was in part a result of the powerful recovery in oil prices, a dovish Fed, diminished tail risks in China, and a weaker dollar," he said.
"However, except for the oil prices, which I can see rising further, none of the other three developments are necessarily the beginnings of new trends," Jen observed.
He looked for the recent close correlation between oil prices and equities to soon fade.
Jen also maintained his view that central banks "are over-reaching" and that "2016 will likely be the year marked by failures of central banks to continue to fuel asset prices."
In terms of near-term event risk, the April 27 Fed decision and April 28 Bank of Japan decision will be closely eyed, traders said.
BNP Paribas strategists noted that two-year U.S. Treasury yields, currently at 0.814%, were at the highest levels seen since Fed Chair Janet Yellen delivered a deemed dovish speech March 29.
"Continued gains in equity and crude prices Wednesday may be leading to some wariness that next week's FOMC meeting could yield a more hawkish message," they said.
With U.S. Treasury yields on the rise, the greenback rose across the board Wednesday, "weakening against the oil-linked MXN, CAD and NOK," they said.
"We think a further repricing of Fed expectations could extend a bit in the days ahead, but with USD gains likely to trigger higher USDCNY fixings and potentially derail the oil price recovery, we suspect that feedback to the risk environment would prevent markets form pricing significant prospects for a June rate hike," BNPP said.
Beyond the Fed decision, just one day later the BOJ meets. Speculation is high for new easing measures to be announced, especially after recent comments from BOJ Governor Haruhiko Kuroda reiterating that further easing might be on the table, although not a given.
Dollar-yen, at Y109.47 currently, has risen from lows near Y107.77 Monday to a high of Y109.90 today, while ten-year Japanese Government Bond yields, trading at -0.11% at Thursday's close, remain near record low yields. On Wednesday, ten-year yields posted a new life-time low of -137%.
On what the BOJ may opt to do this month, MNI's Hiroshi Inoue said in his latest BOJ Insight piece, "Governor Haruhiko Kuroda could make a 'comprehensive decision' that the bank must stop inflation expectations from falling further as the timing of achieving the 2% inflation target slips away again."
"If that were to happen, he would likely propose expanding the aggressive easing program even though it was only three months ago that the board voted to bring in an unpopular negative interest rate policy," he said.
Ideally, BOJ policymakers would like to see a few more months of economic data "to confirm whether the underlying price trend has shifted downward, with firms hesitant to raise prices and household income is slow recover," Inoue said.
"Some BOJ officials are worried that no action amid investor hopes for more easing would cause the yen to rise and Tokyo share prices to fall," he added.