Friday Chart Book

November 1, 2024

As usual, I am writing this part on Thursday night before the payroll numbers are released. I will discuss the NFP release and the market reaction in the paid section further below.

The last day of October finished with very spooky price action across markets, with massive deleveraging flows crossing all global macro markets. UK gilts (see yield chart below) seem to have caused further weakness in bonds, which then had knock-on effects across other global markets. Even much-loved US equities got a walloping. Negative earning newsflows and weak Chicago PMI contributed to negative sentiment.

The bond sell-off continues, once again led by UK rates, with UK 2y yields moving more than 30 bps in two days. In currencies, Pound Sterling is the worst performer breaking lower and approaching the 200 ema (see charts further below). This is a bond vigilante playbook, whereby the market raises the risk premia on bonds and their currency, putting pressure on the government and the central bank to act appropriately. What happens in the UK could be a warning sign for other countries. There is no free ride. People are comparing this episode to what happened 2 years ago when Liz Truss announced her ridiculous budget. It’s totally different as back then the market added 4 full rate hikes as inflation was printing close to double digits. This time around, markets reduced the front-end profile by one cut but still shows 100 bps worth of cumulative easing to come. What I think is more likely the market’s interpretation of it all is that a government is pushing on a string to kick start growth with more debt, while everyone is rightly concerned whether this is going to be yielding the growth benefits down the line. Remember that governments are generally very bad at converting fiat currencies into actual productive capacity and growth.

You would think all those moves might have occurred after a hot payroll number (again a reminder that this was written before NFP). Imagine what would happen to bonds and risk should we see continued stronger US data and an eventual Trump win and Republican Sweep. Stay alert and nimble. This is a proper macro environment with heightened risks.

Those of you following me on Twitter would have seen me tweeting, “Bonds are down, dude”, pretty much every day during the week. This is not to make a joke about anyone in particular but just the overriding sense when reading many who want to buy the dip in bonds. There will come a time to do that; maybe it’s on Friday on a bad payroll print, but as far as my allocation model and momentum model are concerned, we are not there yet and remain short.

As for the election, I obviously have no idea what will happen, but it’s worth working through some scenarios. If you are running risk, I urge you to do a similar exercise if you haven’t already done so. Also, please catch up with our 3-post series on the US election. Here are the 3 parts:

Part 1: Debt, Deficit & Rates

Part 2: Showtime for Macro

Part 3: Socio-Geo-Political is the new Macro

For example, look at the chart below, which shows a simple scenario analysis for election day. I do this for important economic numbers, which is relatively easy as you could roughly guess the market reaction. This binary event, however, is way more complicated. While probabilities can be adjusted as one sees fit, the implied market reaction is a very tough call. You never know how things can pan out. The below scenario sees SPX down by 7% in a democratic sweep. I’m not sure. I could imagine a scenario when this is actually up and down in a republican sweep. As such, it is ok to work out scenarios, but I would put a wide room for error around it.

By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published. I would highly recommend you go through these notes and guides if you are new to the pack. I am also in the process of making an intra-day model available soon. It’s in the works.

Further below, the full book of 250+ charts covers the whole asset spectrum from equities, bonds, commodities, FX, and Crypto to give you the most extensive view. On average, it will generally provide a good 5-10 set-ups on a weekly basis.

This is a reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts. This is not for free and incurs an additional cost. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions. It’s taking time to set everyone up so I will limit the amount of users going forward.

Let’s also read my friend Macro D’s recent thoughts on markets before engaging our scanning eyes across the multitude of charts that I have updated for you below. I am also adding a few post-NFP thoughts just before we engage with the chart pack.