Since the last FOMC decision, equity indices remain near their highs, credit spreads at their tights, Gold prices near all-time-highs and yet long-end yields have risen alongside commodities markets, TDS macro analyst Daniel Ghali notes.
No sign of substantial inflows hitting the tapes
“Price action is inconsistent with a Fed that is 'behind the curve', and if anything, last Friday's NFP report marks the first concrete challenge to the market's expected rate cut path. Rates markets have begun to notably reprice the Fed path, but Gold prices have yet to be weighed down by liquidations.
“After all, there is a limit to repricing the easing cycle's path given the Fed's lean, the Yellow Metal still holds a high margin of safety before the first CTA selling program is kicked off, and macro fund inflows continue to support higher prices, albeit at a drip. Interestingly, we still see no sign of substantial inflows hitting the tapes. Contrary to what is implied by price action, the last weeks haven't seen massive inflows into Gold according to our positioning analytics.”
“Our gauge of macro fund positioning is now at its highest levels on record, with our estimates of positioning for this cohort now slightly surpassing levels seen in the weeks that followed the Brexit referendum. Gap risk is elevated, but the repricing in rates markets has thus far failed to catalyze liquidations, suggesting macro funds are still comfortable betting on an 'overly easy' policy nonetheless.”
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