This Blog post is basically a rollup of a tweet I made, https://x.com/Cyclops_Trader/status/1774917465988116749?s=20 so while the language is brief (to fit into Twitter posts) I feel it gets the point across. But for this post here is an explainer for those of you who might be wondering what the hell I am talking about.
(Remember, my Market Mat desk mats are a great tool for those wanting to learn markets - check them out here: https://marketmat.net.au/collections/trader-desk-mat )
Anyway, here we go.
I started with the negative correlation in Gold:
#Gold (inverted Left axis)/ US 10yr Yields. Guess (Like equities) when yields had pressed higher gold & equities sold but were strong on rel basis. So if we see yields push (watch CL) prob expect pressure on $GC, (Gold) $ES (US Equities - all equities really, probably more so Aussie equities as we are basically mining and banking haha), etc but the cut narrative probs continue the bid.
Then started to highlight recent economic data points that also tend to be a niggling thought in the back of ones head:
Also on this, We have recent PMI (Purple) data on an uptick which has leads CPI (Orange) and PCE numbers.
Then move onto another risk asset being the stock market, pointing out over the period of rate increase we have seen an almost ignorant-to-it stock market. With minor blips in the market on decent shove up in yields. (likely driven by the heightened risk (as outlined above in econ data indicators):
And the $ES is precariously high against a possibly pushing 10yr yield. With oil also. Not saying a "crash is imminent" but some pretty flashy red lights suddenly starting to appear.
Then i bring the other fleshing light in the reflationary story with Oil. Oil pushing up, paired with PC and recent inflation data is NOT something the market wants to see sustained.
And again - similar to last year we had $CL #Oil leading. Mid-last year on a yield push higher, oil led the move, again making things very difficult in that middle period. adding to that reflationary/sticky inflation story against a CUT narrative. (WTI Left axis vs US 10 yr)
Starting to feel a little "inflectionary" where we have elevated risk assets, against flashing inflationary "risk off" red lights. A confused market. Do we believe the data or continue to run with the narrative? Commods pushing against USD with raising inflation indicators.
I guess in conclusion, there are just so many flashing red lights warning about equities, and even gold downside risk, that it's too hard to ignore. As mentioned above, I was looking at how I was to manage my risk wound this and as a real-time example it involved cutting all my REIT exposure (look a the tweet date, it was yesterday, JUST before we saw the REIT index down some 4% (Thank goodness).
So we are now seeing RATES SENSATIVE equity moves being made, (proving more my points illustrated above) and they came off in dramatic fashion.
How the rest of the market moves and breaths off this, remains to be seen - maybe we see a data point come out super dovish and yields tumble and equities continue to heave upward, I don't know, that's not the point, the point is, I think for me, let the market tell show where the risks are, and it's up to me to position myself to make money from them, ignore them or position to avoid them.
Anyway, that's it for me - Buy a Market Mat desk mat, https://x.com/Cyclops_Trader/status/1774917465988116749?s=20 help me get it out of my office - and maybe you can start the journey of learning to read the market!
Enjoy your evening!