Another Nail in the Reflation Coffin: Real Yield Curves

Although coincident growth data is holding up for now, there are a number of macro “red flags” at present, in particular flattening yield curves (despite the recent bounce, US 2s10s is still 34bps flatter YTD) and falling excess-liquidity conditions. Yield curves are...

Flatter Yield Curves a Headwind for Risk Assets

The US and global yield curves steepened briefly last summer and steepened further after Trump’s election, but it has been rolling over almost all year. This has a negative read through to growth and key risk assets. The yield curve is one of the key things we track...

No Turnaround in Sight for C&I Lending

We are seeing multiple signs of a slowdown in lending in the US, as discussed in our recent thematic US Banks Stocks: Exposed to the End of the Credit Cycle. The top chart shows a coincident relationship between sales-to-inventory ratios and C&I lending. As...

Reflation in Danger Due to Low Liquidity

Over the past few weeks we have expressed scepticism on the Trump reflation trade and we have argued that bank stocks should underperform. We have shown previously that when you look at the 3 and 6 month change in Commercial & Industrial lending as well as the...

The Dark Side of Reflation

Higher economic growth usually translates into higher bond yields, higher stocks and rising oil prices; but, too much of a good thing is bad for stocks. Over the past few weeks, we’ve shown that our stock/bond RSI signal has triggered. We now have an Inflationary...

Financials Rally at Odds with Credit Cycle

Financials have been the biggest winners since the Trump election  The S&P Bank ETF KBE has rallied 29% since the election.  We’ve written about financials over the past few weeks, but it is worth highlighting again. While we may see financials rally in the short...

Higher Yields a Vulnerability for US Housing

Higher US yields are already leading to higher mortgage rates in the US.  Building permits are one fo the best leading indicators for housing, and mortgage rates themselves lead building permits.  The next chart shows the modest recovery in building permits is likely...
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