Hot & Cold… While a chunk of the US continues to grapple with freezing cold temperatures, it’s no secret that the latest market buzz is all about the reflation trade heating up. Equities were basically frozen in their tracks yesterday as the 10-year yield rocket higher, but have broken free today, only to shiver at the thought of a further sell-off in Treasuries and higher inflation on the horizon. Of course data this morning set the tone: a whopping +5.3% MoM print from Jan Retail Sales made it seem like Christmas came in January as consumers got their second wave of stimulus checks, and higher than est PPI data finally delivered the inflationary evidence that’s been needed to back up recently warming expectations. Industrial Production also came in with a healthy beat for good measure just to drive home that Manufacturing is humming along as well. Stocks are paring some of their losses as yields have come of their data-induced highs (10-year almost grazing 1.33% at one point), but clearly with more stimulus on the way and the Fed “not even thinking about” intervening, it’s likely the Treasury trend will continue. The question will be where the money coming out of the bond market finds its new home – how much further can the equities bubble stretch, especially if the USD continues to find new life? (inverted DXY vs SPX below)
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