E Markets: When In Doubt, Get Out


Indeed, we are in an environment where global activity shows signs of having peaked, US real rates remain extremely negative, rallying fixed income, and higher gold prices are consistent.

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US CPI inflation is the key macro variable determining whether markets move into a more defensive posture and cross-asset vol rises, and the US dollars rally more aggressively.

China seems to have gone from the Penthouse to the Outhouse, as of late, with signs that the regional economic cycle topping out is a significant concern for Asia. It is promulgated by three major arcs:

  1. A slowdown in manufacturing activity in the region.
  2. Social mobility restrictions in the APAC, including the start of a two-week curfew in Thailand from today.
  3. Concern that more hawkish US monetary policy drives US real rates higher.

US CPI Key For Gold Direction

Gold was anchored around $1800 during US trading Monday as the market kept an eye on real rates and the US dollar. The key indicator will be the US CPI data tonight, which should clarify the macro-outlook, which should give gold some direction. And while this could be a sizable event risk but, to be honest, I have no idea if 3s5s bear flattens or bear steepens on a solid number given the burgeoning global growth concerns. 

And putting a bid under gold, Fed Williams thinks the economy still has not yet achieved substantial progress up ahead. He thinks both economic and technical reasons are driving the decline. In terms of tapering, he prefers to finish tapering before raising rates. Also, he is the first Fed member to comment on the recent fall in yields.


We did not get the follow-through on our short AUDUSD (.7480) as .7450 saw a big bid come to the market, so we closed at flat as I am not reading this market profitably this week. When in doubt, get out.

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