U.S. equities rose again Monday, S&P up another 0.2% to a fresh record high. US10Y yields up 1bp to 1.29%, but a record low on real U.S. 10yr yields, falling to -1.127%, reflecting the sharp decline in nominal yields since March coupled with only a modest pullback in inflation expectations.

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U.S. equities shrugged off earlier weakness in a relatively quiet start to the week, as the macro backdrop remained essentially unchanged. Despite lingering delta variant concerns. Provided Europe or the U.S. does not step back into the lockdown abyss, and risk could remain anchored so long as the Fed remains committed to delaying rate hikes until 2023

But with the hiccup in risk sentiment in Asia on the combination of China crackdown and Delta variant concerns, we could expect a steady rotation from Asia EM into D.M. equities (Into Japan and out of Asia x Japan) 

BlackRock offering inflation hedges

A tweak to BlackRock's model portfolios has triggered a record inflow for the biggest ETF protecting investors from inflation, Bloomberg reports. The $30.7 bn iShares TIPS Bond ETF absorbed nearly $1.4 bn on Friday, according to data compiled by Bloomberg. The same day, $1.3 bn was pulled from the $16.3 bn iShares U.S. Treasury Bond ETF - which is also the most ever.

As far as the dollar is concerned, overnight economic data was a bit of a saw-off

A miss on new home sales in the U.S. in June, down 6.6%mom. At 676k, sales are remarkably close to the 2019 average level and well off the nearly 1mn highs earlier this year. Dallas Fed manufacturing is also weaker, down 3.8pts in July to 27.3.

A miss as well on Germany's IFO for July, business climate down 0.9pts to 100.8, driven mainly by the expectation’s component. Delta concerns are weighing amid a stuttering vaccine campaign.

Three themes will continue to drive risk this week

First, composite 'flash' PMI data from Europe and the U.S. suggest that the global cycle remains firmly in expansionary mode but slower. Within these data, the U.S. manufacturing sector remains in rude health and supports the argument that the economy outperforms the rest of the world.

Second, the COVID-19 Delta variant remains at the center of growing concerns in Asia. The more significant hurdle for social-mobility restrictions strengthens the U.S. outperformance narrative. That should be positive for the USD and points to further underperformance vs E.M. equities relative to U.S. markets.

Third, these trends – USD strength, reflation trades underperforming – could be furthered by a more hawkish-than-expected FOMC meeting. Financial conditions are loose, and the S&P 500 is at an all-time high suggesting these are not conditions for a dovish pivot.