Running back last week, it was a great week to be long of inflation related assets.  Particularly Oil +1.6% (+17% m/m), Copper +3.1% (+15% m/m), and Platinum +2.9% taking its monthly gains to +10.4%.  Markets seem to be cooling off this morning, and from my estimation, perhaps entering a period of 1-2 weeks of risk…..before perhaps more of the same reflationary ramp into year-end. 

  1. USD- decided to come of some “air” early this morning, climbing back to 91.23 but has since retreated. The dollar has room to bounce here, but likely won’t get too far. Stimulus talks seem to be restarting, and wouldn’t shock me to see something develop into year-end.  But for the dog and pony show of partisan “hard ball” in Washington DC continues. But, we think not only is the cycle responsible for the recent accelerated slide in the USD, but also news of Janet Yellen’s being appointed to Treasury Secretary.  Janet has long been a proponent of low interest rates, and has a long track record of being considered a “dove”.  The US Dollar los 1.00% of its value last week…bringing its ytd decline to the tune of -6.2%. 
  1. Energy- we’ll be watching for entry points to get involved in the energy rally.  If we are on the brink of about 1.5-2 weeks-worth of market risk, we think we’ll get our chance. 
  1. Treasury Yields- yields are rising, and we think into year-end to early 2021 they’re going to begin rising faster.  It wasn’t long ago the 10yr yield was carrying a range low of 0.50% – while there’s always a chance to retest out into the future, we don’t think we’re going back to those pandemic lows in yields anytime soon. Hunting for opportunities to add to our short positions in Bonds. 

Implied Vol table…..SPY showing -25% IV discount, NQs -16%, RTY -4% – The SPY and QQQs showing complacency here, we’d warrant some caution for the bulls here, BUT we remain bullish on US equities now and going forward. 

*Chart data provided by Hedgeye Risk Management Research

Let’s keep our eyes on this coffee market as well… is just as much a bullish play on EM currencies as it is on the commodity itself. 

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John Caruso

Senior Market Strategist

Follow John on Twitter @JCarusoRJO. John began his career at Wilshire Quinn Capital, a Wealth Management Firm based out of Los Angeles, California. John made his move to the commodity industry at the end of 2005, and began his path at Lind Waldock, at the time the largest retail brokerage division worldwide. John did his undergraduate work at Robert Morris University in Pennsylvania from 1999-2003, where he was a 4 year varsity basketball letterman.  A self-professed “Macro Trader”, John uses a multi-factor fundamental and “quantamental” trading model in distinguishing market cycles based upon the accelerations or decelerations of growth and inflation metrics. His technical and quantitative approach is heavily reliant upon trend and market range analysis via a custom built standard deviation system in helping him make probability-based market decisions. John is an avid reader of all things pertaining to finance, and behavioral economics. Click here to sign-up for John Caruso's Trading Coach Insights. Daily information and insight on all futures marketsin ranging from metals to equities.

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