US10Y yields undergoing a correction... selling to resume

٢٣ أغسطس ٢٠١٩

Here we go for Jackson … Fed policy is what matters this weekend and in my books markets are headed for a bearish surprise. The inverted curve is going to create a USD shortage and keep USD higher which will undermine risk assets. Fed funds are now pricing almost 100 bps of cuts by Sept 2020, though Fed talking heads are saying there is no urgency to move again.

To put simply, the Fed is at risk of falling “behind the curve” which will trigger the UST curve to further invert, risk assets will sell off and the USD will catch a bid vs. commodity currencies and EM FX. Counter-cyclicals like JPY and CHF (and a much lesser extent EUR) will remain supported.

Best of luck all those using Jackson to position for the Fed Sept and Q419 flows.