Recession worries have peaked locally as the better-than-expected ISM services and gasoline inventories reduction relieved concerns on US consumption. As short duration positions have been reduced massively over the past three weeks, short-term risk-reward skews asymmetrically to higher yields into the big US data week. However, the span and scale of a rebound in yields are still question marks. Although the CPI release is expected to be strong, the market may look past the June data given the recent pullback in crude and gasoline prices and the slowdown in freight data. Also, UMich inflation expectations still matter, but the Fed's weight on the data should be lower after last month's revision -especially given 5y5y breaks staying around 2.1%. More importantly, the Q2 earnings season will kick off next week, starting with the big banks. Do not forget it was the forward guidance revision from retailers that fueled recession concerns in the last quarter. Macro Trader will wait until after the data week to tactically add long duration positions.
- UBS Strategy
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