US equities recovered Friday, S&P up 1.1% to close the week 0.4% higher and at a fresh record high. US10Y yields rose 7bps Friday to close at 1.36%, 6bps lower over the week.

The PBOC announced a surprise broad-based 50bps RRR cut after Friday's China market close, which the market could interpret as a pre-emptive move to support slowing domestic demand.

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Steeply-lower UST yields over the past fortnight, to all appearances, signal growing concerns around the economic outlook. However, China's RRR cut on Friday could offer near-term " Alka seltzer moment" for reflation trades. Copper, oil, and iron ore are starting the week in positive territory, while Asia credit is rallying,

But perhaps a word of caution as Friday’s reflationary trend pivots should prove short-lived if the June US CPI report (due July 13) is a potential catalyst for greater urgency to taper asset purchases at the July 28 FOMC meeting. Indeed Higher US yields could follow this print, pulling the US dollar with it and sabotaging reflation trades, especially if we see another uptick in rates volatility. 

One Way Street In AUD

It has been a one-way street in AUD since the China headlines. After printing fresh lows in Asia on Friday, not much has changed fundamentally, and I have sued this rally to get short again ahead of US CPI. Positioning remains stretched and will start to get painful through 0.7400. Short AUS here (.7480) with a stop at .7525.