Many, including me, were anticipating a relatively quiet week following last week’s FOMC and central bank bonanza. As usual, markets do not fall for no banana in the tailpipe.
What started with a down day in stocks on Tuesday evening quickly unravelled into a washout of consensus positions across the board. Gold got whacked, Oil went up, Curves flattened, and the Dollar rallied. Equities saw a drawdown, although it’s small by historical standards. I asked around and received only a little information as to what caused the unwind. Some are pointing to a small uptick in volatility, which then pushed vol targeting funds to de-gross and cash-in what many called the best month for those funds this year. Risk parity indeed had a great run (see below), fueled not only by low volatility but also by turning correlations for bonds and equities. Then rumours started swirling that next week’s payroll would be a handsome beat of more than 100k. Still, we might not see the number as the possible government shutdown might occur and cancel our usual Friday NFP party. What a shame.
Growth vs value had a 4% correction from the highs, with much more room to consolidate back to the early September levels.
1y1y OIS has backed off 25 bps since the lows a few weeks ago.
Yield curves have flattened aggressively throughout the month, with the US 5-30s curve now trading below 100 bps, which could be seen as a head-and-shoulders formation, targeting another aggressive flattening trend ahead.
The least discussed market trend over the month has been the aggressive yield curve repricing in Japan. Here, the 5-30s curve has flattened 30 bps from the intra-month highs, driving the bid for global long-end rates lower.
Much of this move was driven by heightened expectations for another rate hike by the BoJ, with October now priced at roughly a 50% probability. 1y1y OIS has broken to a new high at 1.13, which still looks too low.
The JPY, however, doesn’t feel the appreciation pressure, mostly due to the recent USD appreciation, but also doesn’t perform well on the crosses vs EUR or CHF.
Many moving parts are engaging simultaneously. Maybe it's just about quarter-end rebalancing flows, or maybe there is more to the volatility than we would like to believe. My antennas are sharpened, and my gut is telling me there is more to come. What is certain is that I will be right at the pulse and taking informed views through our roadmap and models. The 2025 buy-and-hold portfolio is up 21.3% YTD in USD terms.
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 free and incurs an additional cost. These are my momentum, reversal and intra-day models I am often referencing.
If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
Let’s now read Macro D’s latest thoughts on geopolitics and this week’s SNB meeting. In addition, you will find the updated chart pack of all 250+ charts across the global macro universe.
Have a wonderful weekend!