The probability changed from a “risk-off” scenario – to a continuation of more “Stagflation”. That’s how we’re reading the model the morning. So for those that were gung-ho about another bout of Scenario 4 aka Risk Off in Q4, we’d be doing you a disservice if we stayed with that call for now. The biggest risk we face in the near-term is unfortunately being held over our heads on Capitol Hill, in the form of more CTRL + Print MMT dollars. I’ll remain agnostic and bound to data and price action – all of which suggests more Scenario 3 stagflation in the near-term.
US Dollar- I can’t stress enough the importance of the US Dollar – trading back on the lows of the week this morning ahead of the stimulus deadline in Washington DC today. We got you out yesterday, and will remain vigilant if we deem necessary to get you back in. For now, that trade is off and risk levels remain elevated for more US Dollar devaluation by our “friends” in Washington DC and the Federal Reserve.
10yr Yields- approaching the 80bps mark again this morning. A very important level indeed, signaling a potential break to 1.00% on the 10yr yield. You have to be conscious of what may be starting to price itself in – a record amount of Treasury debt issuance out in 2021 that could be between $3-6 Trillion.
Removing the Russell 2000 Short Call from our list of “core short positions” – this is a big one as well, we’re officially pulling the Russell from our “Short list”. 1 / 4 of that index is represented by financial related stocks. IF the 10yr is on the verge of a “break-out” from its mundane trading range of 55-75bps since March/April, we don’t want to be short of the financial heavy Russell 2000 small cap index.
Notable: Copper +1.39% to 312.00
SPY +0.41% NQ +0.28% RTY +0.58%
GER -0.59% FRA +0.14% UK +0.40% China +0.47% Kospi +0.50%