With such a strong market rally last week, it would make sense to assume that utilities were a major laggard, but that wasn’t the case. If the Fed is truly done tightening conditions and the labor market is ready to crack, there’s a lot of upside remaining for Treasuries. Tumbling yields on the long end of the curve damaged interest rate differentials for the dollar, although its case as a safe haven trade remains intact.

Utilities continue on their tear relative to the S&P 500 and it remains one of the strongest risk-off signals in the market right now. Treasuries look like they might finally be establishing a bottom here and, more importantly, acting as a risk hedge to equities. The next big catalyst for the dollar could come from Japan where the BoJ is loosening the band on yield curve control, which could be negative at the margins for the yen.

All of the traditionally defensive equity sectors & strategies are confirming the move in utilities, which suggests this rally may have legs. We’re beginning to see credit spreads move sharply higher again over the past couple weeks and that tends to correlate strongly with gains in Treasuries. Based on other signals, I think lumber/gold is telling the correct story here.