• US breakevens have collapsed to 2021’s Omicron levels, another market warning of major global macro weakness, as Dr Copper extends its weakness

• The USD strengthened a little over the past week, but remains in broad ranges against most major currencies, but
  • Stress levels in USD funding markets are obviously high, and still increasing
  • Global USD funding conditions are critical to how far financial contagion spreads, and how deep the recession is
  • USDCNY is very weak and looking bearish. CNY’s shift, and it being one of the last to weaken vs the USD, heralds a shift in the global cycle, which does not bode well for economic growth and risk assets

• Commodity markets continue to align with the USD and the US yield curve to signal serious deterioration in global conditions
  • WTI failed to test its current cycle highs ~$123 before tumbling to ~$100, although it has bounced back to $110
  • Base metals are breaking lower, with Copper now trading below $3.9, Iron Ore still range bound, and Aluminum still selling off

• US 10y and 30y yields have stopped rallying for now, and conditions are lining up for UST yields to fall sharply
  • With the Dollar continuing to rally, the US yield curve re-inverting at some points, and commodities markets aligning with both, global markets are looking at further, and possibly steeper, sell offs

• More expensive energy, raw materials, and food costs, combined with a global USD shortage, increases the likelihood of stagflation, if not outright deflation

Trading Ideas – Performance

Trading Ideas – Commentary

• Re-entered EUR & GBP shorts on their technical breakouts, initiated a short in AUD as well

• Gold has turned down, but can’t seem to break lower with any real conviction, keeping our straddle in the red
  • Decision to straddle gold using GLD options, instead of putting on an outright long position, can still pay off, with gold tumbling after failing its retest of 2000
  • At this point, biggest risk to the trade is if gold settles into a tight range again (which it has done quite often of late), with little volatility

• US long yields remain elevated, racking up losses in our long TLT call position, but we purchased a year long expiry for this reason, to give the market time to make a top (if it does!)
  • Went long TLT calls with 1 year expiry, as strong bids for USTs look to be on the horizon as the global cycle shifts
  • Stronger USD, with significantly weaker CNY is a huge warning signal
  • Flat/re-inverting yield curve, plummeting breakevens, and now base metals breaking lower, are all ominous signs

Trading Ideas

• Long USD:
  • Well established trend, in place for >11 months in most major currency pairs
  • Recent sharp increases in the Dollar’s value signals that global economic growth is going to take a turn for the worse. Global USD funding markets will tighten even more, driving the USD even higher
    • US yield curve’s inversion in early April, and mid June (even as the Fed turned hawkish) is a clear warning sign
    • USDCNY has started to move higher rapidly, indicating high levels of stress in global USD funding markets
  • USD longs in general should do well, but of the G7 currencies, look to go long the USD vs:
    • EUR
    • CAD
    • GBP
    • AUD
    • JPY

• Long 10y or 30y US Treasuries:
  • Yield curve inversion (2s10s in early April, 5s10s earlier) signals the coming end of the current economic growth cycle, which means that nominal yields will start to turn down soon
  • Monthly & yearly trends in yields are bearish, and looking for an opportunity to short yields is in alignment with long term trends
  • Pay attention to 10y yields, and if they break below 2.71% support
  • Trade can be expressed:
    • Long TLT, or long TLT Calls
    • Long US T Note/Bond Futures, or long Calls on Futures