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Macro Markets Are At An Inflection Point - It's All About Where The Dollar And Interest Rates Are Headed


  • Macro markets are at an inflection point.
  • After a countertrend rally in the U.S. dollar in February, we believe it will resume the multiyear downtrend soon.
  • In addition, we believe interest rates will keep moving higher for the rest of the year, prompted by higher inflation expectations.
  • Our detailed oil market fundamental analysis indicates that oil prices will keep moving higher as global oil storage moves into deficit territory to the five-year average.

Welcome to the inflection point edition of the Macro Daily!

Global macro markets are at a pivotal inflection point. February saw one of the worst months for anyone allocated in the "inflation themed" trade. While the UST 10-year yield made a new four-year high in February and was in line with our belief that rates are set to break out from a multi-decade downtrend, the U.S. dollar's (UUP) countertrend rebound pushed the euro and oil lower - and, along with it, emerging market equities (EEM) and energy stocks (XLE).

Despite the brutal beating in February, we strongly believe that the central themes in this year's market will continue to be:

  1. The decline in the U.S. dollar
  2. The rise in interest rates fueled by higher inflation expectations

Of course, these two big macro themes come from our micro assessment of the fundamentals of the oil markets (our bullish stance of $70/bbl WTI average in 2018), which has remained unchanged. In addition, inflationary factors remain very strong.

Macro markets are at an inflection point

In the world of macro, the initial trend change can bring about gut-wrenching pullbacks to test the resolve of the believers. Take, for example, the countertrend rally in the U.S. dollar that pushed some speculators to believe a technical bottom was in.

But, in our view, the people who believe the dollar had bottomed from here are missing the bigger 15-year trend that takes place in the currency and commodity markets.

Our view that the fall in the dollar is just the start of a multiyear downtrend was first expressed in this article. But every once in a while, like what we saw in February, markets can abruptly change direction, shake the core confidence of speculators, and quickly resume the downtrend they're in.

As a result, we do

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This article was written by

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