First let’s jump right into this chart here, which Zhedge posted this week and one we mocked up a bit to paint a clear and precise question, that is, who is right, equities or bonds? If the correlation in May wasn’t obvious, it is now, with quite a large negative divergence:
What is driving this divergence? The market sentiment has changed quite dramatically as investors are banking on the FED’s reversal of hiking course and now will embark on a rate cut campaign. Yes, we know it’s crazy, just a few short months ago, the thought was everything was going so well that the FED would need to raise rates. Now, after a complete 360, we have those weak-kneed debt comas induced leverage players begging for rate cuts, which may come as early as next month as the CME Fed Watch tool is now suggesting a greater than 65% chance of a July rate cut!
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