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Stocks Soggy As Oil Falls And Reflationary Assets Pause

By Stephen InnesMarket OverviewFeb 09, 2021 09:11AM ET
Stocks Soggy As Oil Falls And Reflationary Assets Pause
By Stephen Innes   |  Feb 09, 2021 09:11AM ET
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The Euro STOXX 600 (-50bp) is lower with a mixed macro backdrop on Tuesday which looks likely to extend into the NY open devoid on any tier one economic data to change the market mood music.

Yields are pulling back from yesterday's highs while US dollar weakness (DXY -30bp) continues to support commodities (Gold +50bp, Copper +70bp, Platinum futures +1.6%, while oil is now -0.2%). 
Reflationary assets are pausing the recent rally – E-minis are down slightly, UST 5s 30s bear flattened 1.6bp, and the Bloomberg Dollar Spot Index is down 0.3%. It was reasonable for investors to neutralize some beta risks given the volatile moves higher in rates–but the structural themes, e.g., more fiscal stimulus, and an accommodative Federal Reserve, are intact and will likely persist.
Still, its almost as if the stimulus bounce is so well baked in the cake right now that anything short of 1.7 trn deluge will be a disappointment to market reflationary concerns when in reality anything over 1.2 trillion is likely way too much with the COVID curve showing signs of improvement from lockdown abatement alone. I start worrying when Democrat activists start squaring up with the likes of an economic heavyweight Larry Summers. On the surface it is beginning to suggest the go big or go home is turning into a bit of a political charade devoid of economic counterbalance. 
Speaking of devoid of economic counterbalance, US market-based inflation expectations have risen steeply of late. A close look at the data shows that gains have been driven by a sharp rise in the near-term inflation outlook. That's consistent with what one might expect given the extent of stimulus in the system and the likelihood of a surge in pent-up demand when social mobility restrictions end. But the market is also pricing sustained above-target inflation–that requires a pause for thought as, on the face of it, the market is considering an ultimate in a bullish outcomes that hasn't been realized for more than a silver jubilee.


Oil is coming under pressure after a higher session in Asia, taking cues from the physical market that saw sellers' resurgence in yesterday's {{0|Platts} physical market cargo auction window. Indeed this might be the first signs oil has gone too far, too quickly.


One week after "US exceptionalism" became the trade of the week, "USD weakness" has seemingly regained its preeminence. A handful of days last week saw the USD move higher alongside US equities, fostering a misguided belief that both could remain compatible bedfellows, amid a global synchronized storyline once the EU sorts out their vaccine issues. 
The so-called "risk-on" imposter the GBP is looking stellar in this environment. For GBP, the critical argument has been that the UK will come out of lockdown earlier. Real money is arguably still underinvested; the scope for more positioning catch-up is colossal. 
EM FX is trading higher ex-Turkey (TRY -30bp) while CEEMEA is down a touch, but outperforming. Turkey stands out (BIST 30 +1.2%) amid headlines that President Raycep Erdogan is committed to improving relations with the EU (after a call with German Chancellor Angela Merkel).
 USD/MXN starts the New York session a touch lower, with MXN lagging high-beta peers amid broad USD weakness. Flows are skewed towards better USD buying ahead of the 20.00 support. Volumes remain light. 20.00/20.50 are the general levels to watch. FX will likely take cues from the local rates market this week with the market pricing in a 65% or so chance of a cut from Banxico on Thursday.

Stocks Soggy As Oil Falls And Reflationary Assets Pause

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Stocks Soggy As Oil Falls And Reflationary Assets Pause

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Luqman Firdaus
Luqman Firdaus Feb 10, 2021 6:51PM ET
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mr stephen innes in money $ 876.000
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