1. Rate sensitive vs. bond proxy stocks – too far, too fast?
2. EURGBP – upside risks
3. EM bonds – trend break or pause that refreshes?
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1. Rate sensitive vs. bond proxy stocks – too far, too fast?
The RV pair XLF vs. XLU (US Financials vs. US Utilities) has today a Qi fair value gap of 1.9 sigma / 7.1% rich to its macro-warranted fair value.
Typically this pair has moved with long-end rates given their differing duration features and the recent sell-off in US rates has provided support. US Financials outperformance requires reflationary backdrop where both inflation-expectation and rates move higher. Indeed, it appears the market is excited about growth acceleration in Q1.
However, the fair value gap sits at almost 5yr highs. This must be respected given the close recent correlation with price action and the Qi FVG.
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