Recession trades

S&P 500 celebrated inflation data coming in line with expectations yesterday, but the joy proved preditably short-lived as the realization that Fed would still not declare victory over inflation prevailed, and bond markets confirmed it. Junk corporate bonds remain dangerously overstretched here, and a similar fate to EEM or IWM awaits. Note also the disconnect between KRE and XLF, pointing to increasing concentration in banking ahead still.

Whenever Treasuries rise, the appeal of risk-free rate of return decreases, and deposit outflows take it on the chin – conveersely as we see today Credit Suisse in the spotlight again, that‘s risk-off as much as the upcoming data release with my projections thereof. The fact that USD is waking up – and increasingly more, doesn‘t bode well for stock buyers today.

Seems though that the focus now is on banking facilitated rush into dollars – ignoring PPI coming in better than expected as that together with manufacturing and retail sales down shows bad data (pointing to inevitability of recession, disproving the no landing thesis as a minimum) being correctly assessed as more important that misguided bets on the Fed not tightening even 25bp next.

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Let‘s move right into the charts.

Gold, Silver and Miners

Precious metals are to keep increasingly turning, and would recover from any hits due to liquidity / solvency doubts washing across the US shores.

Crude Oil

Crude oil hasn‘t found bottom yet, and after $71 break, the next strong support would be $66 – black gold is reacting to unexpected deterioration in economic prospects, to signs of upcoming recession.