Vimal Gor lifts his rate cuts

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From the always excellent Vimal Gor today:

Markets came into July braced for higher volatility, led by global yields. Despite sell-off attempts in both US Treasuries and German Bunds, yields ended the month significantly off their recent highs. Adding to this were positive data releases from the US, Europe and China, all absent of any sign of demand-pull inflation, resulting in the perfect environment for risk-seeking behaviour once again.

Whilst yields exhibited some volatility during the month, the response in risk assets was muted and largely benign. Relative to the overall move in US yields in the month, the moves in the US dollar were outsized, led by its continued year-long slide against the Euro. Perhaps this was the beginning of the summer of carry that was so rudely interrupted in June. Perhaps we do have the ingredients for another risk squeeze, led by strong growth and accompanied by disinflation, which keeps yields anchored. But the market reactions at the end of June and start of July give us some indication as to just how tightly wound the system might be. When volatility has been crushed, relatively small volatility spikes have the ability to create disorderly reactions across markets. Performance over the month was strong with all flagship funds outperforming their benchmarks.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.