Hi YXI friends,
After moving our risk warning from low to moderate yesterday, I see risk further heightened after a combination of sharp moves in bond yields, the USD, and oil prices overnight. Combined with higher volatility, liquidity conditions are worsening alongside sentiment.
I favour not seeking new risk exposures in this environment, in case of a March 2025 style meltdown in equities.
However, there are still green shoots that could help a big rally if the US-Israel vs. Iran conflict can be resolved quickly. Namely, Treasury General Account balances are declining during a Fed balance-sheet expansion phase. They could have a lagged positive impact later this month, assuming geopolitical uncertainties ease.
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