YIELDS ABOUT TO BREAK HIGHER
Update to $TLT + #ZN Bond Short, $USDJPY long, $VIX long... #DXY too
»CLUB/EDGE client post Tuesday, December 12th.
Big Implications
I show this 10Y2Y yield curve daily for clients.
Today I highlighted how bullish this flag looks on D and W timeframes...
Especially after it has steepened - NOT INVERTED - last month (see "0" line it has tagged a few times but stayed above).
Again, banks love it "cheap and steep" but this is taking on a new tenor of breakout higher in yields/lower bonds than most are expecting - even me - given the growth rotation also in progress!
Granted, I did post earlier this week that I see USDJPY heading higher >152 into 155 (Jan timeframe) before reversing lower through 152 on way LOWER...
In which case, a rising USDJPY means US 10Y T-note futures should fall with yen, and gold/silver could continue to chop sideways/stay on the weak side.
But after USDJPY falls, then US equities should follow lower as TLT, FXY, GLD, SLV rise. It's not a direct correlation, but inversely related they are.
Today I noted some technical levels of note:
TYX (30Y yield just filled the 45.32 wkly gap fill on upside; TNX (10Y yield) has 4.337 to tag. Both forming early "morning star reversals" on wkly means probability of them getting/staying over these levels just increased.
TLT still has to tag 91.07 wkly gap fill on downside, then base, as FXY (yen proxy falls with it). What happens below matters (to yields) and as I have warned recently: bonds do not look done going down. Next TLT short PT is 88.47.
10Y 10-Note futures is still looking to fill lower price targets BEFORE I get bullish bonds. I have mentioned this repeatedly.
And now that 10Y2Y yield curve is uber bullish looking...
Put it together and we could have this as the macro trigger to interrupt the bullish equity flows.
Adding color to this confusion is the fact that global central banks continue to cut rates - this week alone saw Switzerland, ECB + Canada - indicating falling global credit demand, and competitive easing to offset US strength.
BOJ is expected to hike (my bet as posted is January the earliest not next week), but last time they hiked in July 2024, the yen carry trade ignited and NDX fell 15% in a month, SMH -25% and NVDA -35%.
Nominal and Real Inflation is rising there and here, but without Fed pausing, the likelihood of BOJ hiking is small in my eyes.
Adding color to this bearish take are Geoffrey's comments this morning:
There is no way to get a grip on inflation now without austerity.
Stag-flationary recession might be coming a bit sooner than expected.
OR austerity or Cut some damn war expenditures YESTERDAY! (wars are very inflationary).
The USD is a bit tougher to call. Above 108 again... in nominal terms that is - and DXY will ignite higher.
A break below 105.40 is all clear for higher precious metals I'm betting.
But given I am posting about the risk of rising rates... USD will 'follow' yields.
See my DXY/US10Y ratio intonating higher (yellow shaded area).
Above 300 is risk-off, but first we gotta get there.
Careful pressing too hard on longs, especially since it is concentrated on MAG7.
Puts are cheapest at the top.
And you know the weakness under the surface I've been calling out in breadth and net selling since Dec 2nd can pick up speed.
So far, slow and steady - affecting IWM , DIA, NYSE - but after this growth melt-up, we need to be mindful of trapped longs that can trigger volatility.
And speaking of volatility, I saw this stealth 'fiddy cent' VIX trade just come in today...
A VIX Feb 30/60 Call Spread - 100K contracts - for $.52