May was very much a tale of two stories: in the first two weeks, risk assets remained in full #liquidation mode until signs of #capitulation started to multiply, mechanically triggering in return widespread buying back of short positions from mid-month onwards. That short-squeeze across risk-off trades was further catalyzed by numerous bank holidays on both sides of the Atlantic on the one hand and growing expectations from soft consensus of peak inflation and/or interest rates on the other.
While understandable, these expectations are still premature in our view, which is incidentally confirmed by first, recent price metrics themselves, second, energy's enduring dynamics, and third, #bonds' prices altogether, particularly in #peripheral Europe.
We therefore maintain our long-held intrinsically #defensive asset #allocation (long #commodities and defensives against risk assets (and yes, that does include bonds...) altogether, which, incidentally keeps on outperforming. A little albeit possibly not unsignificant caveat though: for the first time this year, we took some profits on some our short positions ( notably Tech and Russell 2000) by mid-months amid aforementioned signs of capitulation. Looking forward, only more fully-fledged capitulation will ensure that risk assets eventually confirm any #bottoming-out narrative, at least from a DURABLE perspective...
Stay tuned for more!
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