The Dow soared non-stop (along with a VIX crash), seemingly on the heels of Senate Democrats' $1 trillion infrastructure plan...(NOTE - VIX was crushed into the close and stocks also fell!)
As RBC's Charlie McElligott notes, some focus in macro community today (with v little interest paid in equities, curiously) on the proposal from Senate Democrats of their own $1T infrastructure plan to President Trump per the NYT this morning.
The reason macros care so much of course is that a coherent and detailed infra policy would be another major boost to their view on higher rates / reflation.
Trump’s purported infra plan has had rough details out for months now via his website @ $1T in its own right, theoretically spread over 5 years but most importantly, with private-funding aspirations. The Republicans are ironically the issue here for Trump, as historically this sort of “job / works program” stuff is the stuff they have despised as “big government mismanagement / pork barrel “creep.” So this could be a fascinating test as to whether or not Trump can move across the aisle and ‘coalition build’….IF the plan has enough overlap with his own of course. From the ‘color me skeptical’ side: this is likely a symbolic gesture with no real intent or expectation to ‘get a deal done,’ where actual hope is to float this plan in ahead of the Jan 27th ‘due date’ on the Obamacare “reconciliation” bill. If the new administration and Republicans can’t get their stuff together on that front, and the Dems were to ‘beat them to the punch’ on infra too, it would be an embarrassing PR start for Trump’s team. From a trading perspective, it would likely take further air out of the USD-longs and likely see rates travel lower as “reflation” bets come off.
As the Trumpflation trade came back to life... cyclicals soaring over defensives...
All major indices are now green on the year and post-inauguration...
Today was the biggest short-squeeze since the first day of 2017...
The last month has seen the lowest trading range for The Dow since 1900...
And as realized volatility has collapsed...
As BofA notes, Implied vol remains low on the back of anemic S&P 500 realized volatility.
In fact, through Monday 23-Jan, the S&P 500 is on track to record its 5th lowest volatility for the month of January in 90 years.
Low short-dated vol is contributing to extremely steep implied volatility term structure and the spread between SPX 3m to 1m ATM volatility is near two-year highs.
Nasdaq and S&P hit new record highs...
An ugly 2Y auction spiked rates...
But the entire bond complex was a one-way street higher in yield today... pushing 30Y and 2Y briefly higher on the week...
The Dollar and Yields decoupled today...
The USD Index flip-flopped around all day... having tumbled to the lowest levels since The ECB meeting in December...
Copper was the biggest beneficiary of today's Trumpflation trade...
Oil clung to gains despite the modest USD strength as $53 appears the new Maginot Line...ahead of tonight's API data...
Notably, after piling into bets that the benchmark prices for crude oil traded in New York and London would converge by December 2019, traders are now paring those wagers. Doubts have cropped up that a Republican Congress will be able to push through plans for a levy on imports and an exemption for exports, moves that would favor U.S. produced West Texas Intermediate over the global benchmark Brent.
Gold slipped notably lower today (despite only modest moves in the USD) - almost the worst day for gold since the Fed hiked rates...
Ans gold still leads in 2017...