• Gold down $6 to $1813
  • US 10-year yields up 10 bps to 1.87%
  • WTI crude oil up $2.03 to $85.85
  • S&P 500 down 86 points to 4576
  • JPY and CAD lead, EUR lags

The dominant theme in trading to start a holiday-shortened US week was the rise in Treasury yields with rates up 7-10 bps across the curve. The market is increasingly skittish about sustained high inflation as companies continue to fret about supply chains and chip shortages. Talk of a quicker rise in Fed hikes probably also contributed.

Economic data was light but the Empire Fed printed a big miss in what's an early warning for an ebb in industrial demand.

The stock market didn't like the move up in rates and started soft, tumbled then flatlined. Several attempts to bottom fish never got traction as the market has watched earnings reports fail to boost JP Morgan and Goldman Sachs.

Speaking of Vampire Squid, their analysts bumped up oil estimates yesterday and that got plenty of attention, as they called for $100 oil in Q3. Certainly, someone was buying oil despite the November highs as resistance. In any case, it cruised right through that barrier and ignored the negative macro backdrop in a keenly impressive day. The loonie far outpaced its commodity cousins and kept pace with the yen on account of strong crude prices. USD/CAD climbed 40 pips at one point but gave it all back as oil rallied through settlment.

USD/JPY is generally a trade you can rely on with rising yields but that push was counteracted by falling stocks today and USD/JPY traded in a tight range sideways near 114.60.

Instead it was the euro and pound stumbling. Part of that is the widening yield spread over bund, which continue to knock on the door of 0% but can't get back above for the first time since 2019.

As for cable, some of the air of the recent run-up has come out in the third day of declines.