Perhaps reports of the Trumpflation rally's death have been somewhat exaggerated in the past few days. After RBC pointed out yesterday that equity generalists are "increasingly uncomfortable with reflation trades", this morning we have seen the latest violent inversion in this theme.

As RBC's Charlie McElligott points out, "after yesterday saw painful “stop-outs” by the leveraged-hordes of UST shorts as the USD came ‘off’ on account of what looks to me the ongoing concerns surrounding President Trump’s ability to implement an alternative to a “border-adjusted” tax system, which had been a core driver of the Dollar’s appreciation thesis, "today we see both US rates reversing higher again with overnight UST weakness following 1) ongoing +++ data trajectory (the strongest Japan Manu PMI print in nearly 3 years alongside the best aggregate Markit Eurozone Manu PMI in series history and another Markit US Manu PMI beat as well) and 2) some intrigue around the pro-reflation $1T Senate Democrat Infrastructure plan proposal.USH (Treasury Long Bond March fut) saw 8000 147/150 put spreads trade earlier, although it should be noted that we are seeing ongoing interest from TLT call buyers hedging for a short-squeeze on account of the significant short-base across UST futs and ED$."

As McElligott summarizes, "a glimpse at thematic equities today is like a glimpse back to the halcyon days of late Nov / early Dec, as ‘cyc vs def,’ ‘inflationlongs,’ ‘high beta’ and ‘value’ factor all work, while ‘low vol’ and ‘growth’ suck wind."

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Further details which are attracting attention is the previously noted proposal by Democrats to launch a $1 trillion infrastructure investment:

Some focus in macro community today (with v little interest paid in equities, curiously) on the proposal from Senate Democrats of their own $1T infrastructure plan to President Trump per the NYT this morning.   The reason macros care so much of course is that a coherent and detailed infra policy would be another major boost to their view on higher rates / reflation.

Trump’s purported infra plan has had rough details out for months now via his website @ $1T in its own right, theoretically spread over 5 years but most importantly, with private-funding aspirations.The Republicans are ironically the issue here for Trump, as historically this sort of “job / works program” stuff is the stuff they have despised as “big government mismanagement / pork barrel “creep.”So this could be a fascinating test as to whether or not Trump can move across the aisle and ‘coalition build’….IF the plan has enough overlap with his own of course.  

From the ‘color me skeptical’ side: this is likely a symbolic gesture with no real intent or expectation to ‘get a deal done,’ where actual hope is to float this plan in ahead of the Jan 27th ‘due date’ on the Obamacare “reconciliation” bill.If the new administration and Republicans can’t get their stuff together on that front, and the Dems were to ‘beat them to the punch’ on infra too, it would be an embarrassing PR start for Trump’s team. 

To McElligott, the implication "from a trading perspective, is that it would likely take further air out of the USD-longs and likely see rates travel lower as “reflation” bets come off."

So maybe the Trump trade isn't quite ready for its second coming just yet. Indeed, as the RBC strategist also notes, there is some substantial “US Trumpflation” trade fatigue, which is visible in ETFs "whichsaw a major pension fund asset allocation trade yesterday at approx $3B a side ‘buy x sell,’ where the quick and dirty #hottake was a move “out of US equities / into international equities and fixed income.”

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But the most interesting part in today's RBC note was an interesting observation on a key decoupling in two of the key aspects of the Trumflation rally. To wit:

USD AND US RATES DECOUPLE FOR FIRST TIME SINCE ELECTION: As highlighted by Mark Orsley yesterday, rates continue to see ‘reflation’ bets placed, while Dollar longs look to be scaling-back / “selling the inauguration.”

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