The Cocktail Of Fiscal Stimulus And Pent Up Consumer Spending

While the bullish cocktail of fiscal stimulus and pent up consumer spending will likely propel economic growth into the stratosphere, it will come at the cost of higher yields

Another pedestrian Asia handover as London takes the risk baton with oil anchored to 59.50 and gold lifting as apparently inflation is in the air. However, the is starting to smile back saying otherwise, But the focus stays on US yields, with the whisper hype hitting the London FX desks smack in the face.

Indeed, it’s the Boeing (NYSE:) 777K NFP whisper number that is finding a soft echo on currency markets as London FX launches its first salvo after “Sleepy Hollow” Asia FX trading gives way to London

Still, I expect choppy trading sessions to unfold over the next 24-48 hours as traders jockey for position ahead of the NFP, which could provide the ultimate economic data inflexion point into Q2

And while the bullish cocktail of fiscal stimulus and pent up consumer spending will likely propel economic growth into the stratosphere, it will ultimately come at a higher borrowing cost as the US rates debate remains at the forefront of all conversations and could eventually be the ultimate rally capper.

Markets will continue to pay close attention to the USD development while maintaining the view that the pace of the yield moves’ trajectory is a potential headwind for equities rather than absolute levels.

Month-end distortions make it difficult to get an accurate read on the events of yesterday. But you can’t make up those month-end end rebalancing signals on that are proving priced to perfection. I’m merely commenting on the lay of the land after trading the GBP/USD higher month-end signal last night (Long GBP/USD 1.37277). I’m doubled down short GBP at 1.38062 (s/l 1.3831) for the record.

The direction of the dollar from 1.17000 is the lowest conviction trade out there. Most buy into the deficits/weakness argument, but it hasn’t worked. The economic strength argument should work, but history is against it. Although my view is that the dollar strengthens, whichever version of events is proving correct, EUR/USD can’t stay here. So, there has yet to be the dollar-driven massive cross-asset pricing yet to unfold

US Treasuries: & Treasuries, and particularly “real rates”, are in a precarious position. They have been well behaved and buying into the Fed story of lower for longer, but the Fed is “state-contingent”. Strong payrolls could be a bit back bitter for stocks if the solid economic impulse drives US short-dated rates higher and tightening financial conditions.

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