Hi YXI friends,
Equities are acting risk-on on Wednesday at the surface. However, the plumbing is sending mixed signals, and I do not want to overfit a clean narrative.
Breadth was healthy (RSP kept pace with SPY), yet the day’s “winners” were largely reflation expressions (oil, copper, silver, gold) while crypto de-risked and duration (Treasury yields) backed up.
My base case is still sideways-to-up for equities as long as credit and funding remain contained, but I am treating the current tape as a push-uphill regime.
The market can grind higher, yet a firm USD, an oil impulse, and sticky long-end yields are headwinds that can cap follow-through and keep positioning fragile.
FOMC Minutes: The latest FOMC minutes suggested that the FOMC members held a diverse range of views (i.e. disagrreements), with several suggesting a rate hike should be on the table should inflation persist.
It is important to remember that the FOMC was hosted before the latest CPI print, which showed a healthy downtrend in inflation readings.
Primary bearish triggers I am watching next: the HYG/ IEF decline, a SOFR-EFFR spread blowout, US 30Y yield failing to roll over, USO pressing into its supply zone, DXY failing to break lower, and any carry-unwind signal via USDJPY.
If those remain stable, equities can continue to absorb the mixed macro backdrop.
If those deteriorate together, the “not a crash” backdrop can quickly morph into a liquidity-driven de-grossing event.
Housekeeping: I am travelling tomorrow and won’t be able to record the weekly video. Apologies in advance.
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DISCLAIMER: This newsletter is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
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