CME Tightens Silver, Game Hasn’t Changed

Whenever something new and unusual occurs in markets, the temptation is to cut and run. We're wired to recoil and retreat from things we've never seen before; be it in nature or in markets. Even with that, we're surprised at the number of people we've heard from who have seen the madness in meme stocks and are clearing out of everything.  Less than 1 hour ago, the CME raised margin requirements on XAG Silver by 18% in an effort to stem speculation. CFTC positioning highlights the tepid attitude of sterling longs. The chart below, posted by Ashraf on here weeks ago, continues to steer the main markets as it did 3 years ago this week. 

Is this really a gamechanger?

From a monetary policy stand point, the North Star re-appeared to traders last week when the Federal Reserve and other central banks reiterated their core message: Cheap money isn't ending in the near or distant future.  From a fiscal policy angle, Senate Republicans offered a nearly $700B stimulus package of their own with $1000 checks, so it's safe to say that US spending is coming.

At some point we will see if the market belief/expectation about the post-vaccine world match the reality but, until then-- investors will have to reach for that rainbow.

In the shorter-term, the pattern is clear. The broader equity market is moving inversely to meme stocks. The thinking – at least initially – was that funds might be forced to liquidate and others wanted to get out of the way of the downdraft. On Monday, as it became the squeeze was running out of gas, the dip buyers arrived.

Meanwhile in the FX market, the US dollar held a strong bid to start the week. It didn't line up with market moves elsewhere and will be something to watch. US economic data continues to impress and if inflation materializes, it will be in the US first and that's the bull case for USD.