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US equities were weaker Thursday, S&P down 0.9%, following more considerable losses through Europe. US10Y yields fell 2bps to 1.29% and ending the US session below 1.3% for the first time since February. 'Reflation vs deflation' still dominates market sentiment, not that there was much to add to any side of the debate overnight.

The genuinely unprecedented moves in fixed income continue having knock-on impacts on broader markets, including continued strength in the dollar. The market initially attempted to explain the actions via technical drivers, but commentary has shifted to a near-term growth scare. 

Bonds decouple from other assets with a wicked rally triggering knock-on moves in duration equities: growth and mega-cap tech lead while financials predictably turned flat with yields falling. The US 10y Treasury washed out the pre-covid lows, driven by lower real rates as the Fed's hiking potential gets re-priced lower.

A hotchpotch OPEC+ meeting threatens the perceived 'OPEC Put.' Instability or a higher production agreement could stem oil's progress near term.

Dollar bears remain in head-scratching mode while gold reacts positively as real yields remarkably fall below -1%.

We are at a level I do not want to own USD dollars, but with the Fed possibly moving into pivot mode much earlier than expected, I do not want to be short either. In addition, I am having trouble rationalizing the moves in fixed income, leaving this season FX trader mired in uncertainty.

There is no single factor that I can point to that explains the 17bp fall in the US 10y yield over the past week; rather, it could be a combination of worries, including the spread of the Delta variant of covid and lower vaccine efficacy towards the variant, a slowdown in the pace of vaccination, and a short squeeze. All of which leads to concerns about the growth recovery causing the retracement of reflationary trades, especially as economic data surprises are set to turn negative.

 The current direction of travel could continue in the short-term, given new covid cases in the US could pick up aggressively in the upcoming weeks, as was the case in the UK with the spread of the Delta variant. But in the medium term, the current episode is more likely to be just another bump in the global reopening path, as again the UK example shows hospitalizations and death rates remain low despite the rise in cases.