The Dollar And Rates Decouple For The First Time Since The Election

Perhaps reports of the Trumpflation rally’s death have been somewhat exaggerated in the past few days. After RBC pointed out yesterday that equity generalists are “increasingly uncomfortable with reflation trades”, this morning we have seen the latest violent inversion in this theme.
As RBC’s Charlie McElligott points out, “after yesterday saw painful ‘stop-outs’ by the leveraged-hordes of UST shorts as the USD came ‘off’ on account of what looks to me the ongoing concerns surrounding President Trump’s ability to implement an alternative to a ‘border-adjusted’ tax system, which had been a core driver of the Dollar’s appreciation thesis, “today we see both US rates reversing higher again with overnight UST weakness following 1) ongoing data trajectory (the strongest Japan Manu PMI print in nearly 3 years alongside the best aggregate Markit Eurozone Manu PMI in series history and another Markit US Manu PMI beat as well) and 2) some intrigue around the pro-reflation $1T Senate Democrat Infrastructure plan proposal. USH (Treasury Long Bond March fut) saw 8000 147/150 put spreads trade earlier, although it should be noted that we are seeing ongoing interest from TLT call buyers hedging for a short-squeeze on account of the significant short-base across UST futs and ED$.”
As McElligott summarizes, “a glimpse at thematic equities today is like a glimpse back to the halcyon days of late Nov / early Dec, as ‘cyc vs def,’ ‘inflation longs,’ ‘high beta’ and ‘value’ factor all work, while ‘low vol’ and ‘growth’ suck wind.”

This post was published at Zero Hedge on Jan 24, 2017.