Risk-off sentiment building?

Traders cutting back on reflation trade positions

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A selection of assets that typify risk-off traders has been outperforming a selection that typify risk-on trades. That’s mainly been due to the latest fall in bond yields, which has pushed up bond prices. With bonds often leading conditions elsewhere in the market, some traders are getting nervous about the prospect of an equity market correction.

Macro

The US University of Michigan Consumer Confidence Index rose by 3.5 points in June. It is still relatively low compared to before the pandemic.

UK exporters are still struggling, with export orders very low, perhaps due to Brexit and the weaker eurozone recovery.

Russia’s central bank is tightening policy, raising rates by 50 bp on Friday.

It’s struggling with higher inflation and, unlike the Fed, does not have the same credibility to “look through” such a move. Several other EMs have been tightening policy as well, which could act to temper global growth.

Markets

Speculative positioning in cyclical trades has been falling, potentially a signal that the business surveys will soon fall too.

There’s little love for the US equity indices.

Gold and silver positioning is diverging again.

Non-commercial traders increased their net short position in the USD last week, but by less than in the preceding weeks. There’s a real lack of direction in FX markets currently.

It was a weak day for lumber on Friday, which is now down by 35.0% in the past month - much weaker than most other commodities.

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