Tactical Shift
Macro & USD IG Overview
I haven't changed my view; rather, the low CPI has strengthened my belief that this is just the start of a cutting cycle. Still I'm considering adjusting my position a bit tactically.
Looking back at November and December of last year, most of the yield rally came from misses on high-beta indicators (ISM, NFP, CPI) and a dovish surprise from the FOMC. With major indicators now behind us and the FOMC meeting just days away, , I think low retail sales could be the last push in July. Interestingly, yields have soared at the end of each month without any significant news, even when indicators were sluggish (May, June), So I’d like to watch out.
The monthly candle chart also seems to have reached a plateau this month. From high to low, we saw -40bp in May, -30bp in June, and -35bp so far in July. So, I trimmed my long rates a bit yesterday, and I plan to slash half of my remaining longs if yields fall after today's retail sales report.
Keep in mind, this is a tactical adjustment. I will add longs again before the FOMC meeting. I believe the FFZ4-FFZ5 could price in 175bp cuts in 2024. We've already seen FFZ4 price in 6.5 cuts at the start of this year. So, hold onto your longs tightly and stay nimble.