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Weekly Memorandum 10/4/2021

Stocks dropped to new lows last week, but once again, managed to stage a strong rally on Friday to avert a potentially disastrous bearish close. This could be construed as a higher-low with respect to the trend; all that's needed is confirmation from price.

Interest rates rose last week, as bond prices fell. Inflation expectations continue to rise. Crude Oil just closed out at its highest weekly level since November 2014, which is hardly a bearish characteristic. Grain markets saw nice bids last week too, with the exception of Soybeans. Natural gas prices are at multi-year highs too.

The U.S. Dollar saw a bid, as it continues to benefit from the carry-trade, or play on interest rate differentials between developed nations. We foresee a scenario whereby the dollar could rally in tandem with commodities going forward. This is contrary to the the normal inverse relationship between the two sectors, but it basically would mean that there is greater demand for physical assets than dollars. Inflation can happen without it being hyperinflation.

Cryptocurrencies also saw strong bids last week, and appear to have solidified higher-lows. Simply put, cryptos are in a bull market. If you're not long, you're short. Not the ideal place to be.

A new edition of the Mercator Letter was just published. We updated our macroeconomic outlook and shared some actionable trade ideas.

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