Millennial Macro

In the prior post, The Dollar and Treasury Yields in Limbo: Three Possible Scenarios , I explored potential paths for how the global economy and financial markets could proceed in the intermediate term.  The main difference between the three outcomes depended on the market's perception of the Fed's reaction function.  Seeing as the market odds of a June rate hike have increased substantially following the release of the Fed's April meeting minutes , it felt necessary to further examine scenario 2 . 

From February 12th: Since last year widening high yield US credit spreads, falling global risk securities, commodities, currencies, and inflation expectations  have all coincided with shrinking global foreign exchange reserves.  This combination of factors has produced declining treasury yields as one would expect in a risk-off environment.    If the dollar were to break upward resistance in an ongoing bull run then those trends should persist as US securities continue to beat EM.  To see a return to risk taking, my expectation would be for all or most of those aforementioned trends (in bold) to bottom and reverse.  If the dollar were to break support and correct against a broad range of currencies, a reflation trade may be in order as inflation expectations stabilize and treasury yields rebound.  In this scenario the dollar squeeze would dissipate allowing EM to outperform US securities.  However, if the dollar were to correct or reverse...