Stocks further recovered from last week’s selling climax, adding 1.5% yesterday. Gold rallied USD8 as well while US 10y bond yields climbed 2bps recouping from an earlier selloff (with inflation expectations still heading higher and the cpi report due out on Wednesday) linked to last Friday’s fiscal agreement confirming that D.Trump will post “crisis level” deficits and give up on fiscal orthodoxy as he plans to raise the fiscal shortfal to USD1.2trn, the largest since 2009. Ray Dalio “flipped flopped” on his bullish call from Davos, warning that a bigger shakeout is coming as he mounted his largest (14bn worth) bearish bet ever on Europe, mostly now on Italy. He is likely betting against the upcoming March Italian election (just as people placed bearish bets last year on France and got their fingers burned). The same thing will likely happen here. Berlusconi’s three party’s coalition is likely to win those elections (as a worst outcome) and this won’t be matter for panic (looking at what the Trump effect was on US stocks.. it might just be the opposite) unless it is the 5 star movement coming on top which is very unlikely despite being the most popular party in Italy right now. R. Dalio is also shorting Siemens and Adidas. Investors do not seem to have listened to him today... Tomorrow is another day.
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