What a weekend in Trump-land, set against a macroeconomic environment that, as far as I can tell, looks more like 2021 than 2017. If we cut through all the noise, it seems we’re still early in the business cycle—and things are accelerating once again.
Consensus is being torn apart from every direction—right, left, and center. This is typical in the early stages of a new trading year. So, what’s the current consensus, and how might it be wrongfooted? Let’s take a closer look!
Here’s a look at 2025 and how to trade macro. The short-term outlook remains heavily dependent on the debt ceiling, but there are reasons to be optimistic about risk assets in 2025.
Contrary to the current prevailing consensus, liquidity appears poised to improve significantly during January. The debt ceiling dynamics play a crucial role in this, as they directly influence the FOMC’s considerations.
Most risk-takers were caught off guard by Powell’s attempts to bring the Fed ahead of the hawkish repricing last week. Will this prove to be another incredibly ill-timed flip-flop from the Fed?
While China is moving nowhere and Europe remains paralyzed by political troubles, the US market Santa Rallies, especially in everything high-beta with a sensitivity to liquidity and bond yields.
Markets are back discussing inflation fears ahead of 2025, but is it really such a big thing? The outcome space for 2025 is huge and I am personally torn between the 2007 and 2021 analogy for now.
The U.S. inflation report provided a reassuring backdrop for risk assets. However, we anticipate the ECB to adopt a hawkish stance relative to market expectations today—a view that likely runs counter to public opinion. Here’s why.
The labor market report was weak enough to keep the Fed on an easing path but not weak enough to truly spook otherwise stretched risk asset markets. Here are four asymmetrical Santa Powell cases:
The trend shift in fixed income is remarkable and sharply contrarian to the post-Trump consensus. We expect more of the same ahead, coupled with a firm decision by the Fed to support liquidity in December. Meanwhile, gold may see a catalyst.
A very interesting set of meeting minutes was just released, revealing that the Fed is, in effect, discussing a put for USD liquidity. The Fed is considering changes to support liquidity developments as early as December.
Liquidity trends remain tighter than anticipated, primarily affecting government bond and repo markets. The current market frenzy actually needs a bit of bad news to provide the liquidity boost required to take the next step.
The liquidity situation remains tight, and this cycle continues to defy the norm. Will activity and inflation return before Powell and his peers truly get the chance to inject liquidity again?
A few wobbly days over the past 48 hours have left markets and pundits debating whether the Trump trade is exhausted. We view this as a dip to load up on.
We are writing history at the moment as EUR liquidity is getting more sought after than USD liquidity. This is a rare event in financial markets, and probably also a sign that the ECB is about to take it too far with QT.
We see the China briefing as a major disappointment, while Germany looks like a vulnerable case as well. Meanwhile, some Trump bets still have plenty of potential, especially if bond yields are contained.
The Trump trade is roaring in financial markets, but how will China navigate the turbulence? Should we expect a major fiscal announcement on Friday, or perhaps a conciliatory approach to try and avoid tariffs? And what is happening in German politics?
While the world is busy guessing who will win this election, we’re here scratching our heads over what the story for oil will be in the coming months. Will the Saudis flood the markets after the election?
While everyone is focused on the election results, significant stress is building in liquidity markets, currently masked by election coverage. The Fed and the Bank of England face a crucial test this week.
Sovereign bond markets are performing poorly, even following bond market-friendly releases. What on earth is going on? Are we approaching another ‘whatever-it-takes’ moment from the G3 central banks?
A personal note from Andreas Steno
Our thought on 4 important things to look out for for next week’s US election.
The stimulus being prepared by the NPC for announcement next week seems more like the work of a marketing agency than an economic council. While the numbers are substantial, it’s more of a debt swap than a true stimulus package. Here’s why!
Several markets are already trading as if liquidity has arrived in size, but we have yet to truly see it. The good news is that the ON RRP is close to depletion, which may lead to an early end to QT.
The stars are aligning for a strong end to the year in both fixed income and equities! Inflation is stabilizing, liquidity is increasing, and growth is only softening gradually—a benign cocktail.
Yellen’s comment on real net interest costs suggests that the trajectory is towards negative real rates over the coming years, but there are still good reasons to buy bonds into year-end!
Our nowcasts on the US economy have continued to prove useful for predicting the direction of macro data, with a rebound in US growth looking like the most viable outcome currently, but the momentum in the rest of the world has yet to show, and we are hence on relative value watch this week.
We are left with a market pricing that mostly considers 50bp cuts a feasible scenario in the Eurozone, but the ECB is not a 50bp central bank, especially not if its peers aren’t moving that fast.
While traded prices show signs of exhaustion, market rates in USD have soared due to growth repricing, which aligns well with our nowcasts….
The PBoC remains underwhelming, while the consumer in the West is showing strong signs of momentum in both the UK and the US. But is that momentum carrying through October? More frequent data is starting to cast doubt on it.