Markets are getting spicy and more erratic. What started on the onset of the US CPI print has now morphed into a wider system-wide deleveraging, it would seem. Do you remember the butterfly that caused a hurricane on the other side of the world? Yes, well, global complex systems are not immune to this. First up, nobody knows exactly the dynamics behind the scenes. Yes, long NQ vs RTY was a crowded and beloved hedge fund trade. So what the markets give, they sometimes take it away, and violently so. At the same time, we had the BoJ intervening, sending the crowded USD/JPY quickly lower. This all caused a bit of a VaR shock, resulting in some funds having to degross, I would imagine. At the same time, some portfolio managers grew a bit cautious about other crowded trades they might have on their books and started reducing those. It all points to a position unwind rather than macro. It’s interesting in this context that KRE (US Regional Banks Index) has almost closed its SVB gap since March 2023. This would not happen if there was a macro story in play that pointed to some sort of weakness.
Aside from equity rotation, FX and bond markets, while less volatile, also seem to switch tact within a 48-hour window or less. Steepening followed by flattening and then now steepening again, while rates seemingly want to rally but then sell off as risk markets get battered. Good luck holding a resilient portfolio in these market conditions. Similarly, the USD sells off viciously just to then bounce again. Either you look through this “noise”, or you have to reduce positions. The big picture, however, is signified by the following chart. In short, the global policy pivot has begun.
The billion-dollar question, however, is whether we are facing a mid-cycle adjustment similar to the mid-90s under Greenspan’s tenure or something more pronounced. While I have sympathies for a few insurance cuts, history would teach us that the probability of mastering a soft landing is very small, with most initial adjustments resulting either in a more pronounced slowdown and recession or, more commonly, in a resurgence of inflation further out. For me, I think a soft landing will be hard to achieve, but if the market trades like it I won’t stay in the way. This will bring opportunities. And we will be damn sure to capture them.
As for US politics and the “Trump” trades, I would strongly advise using common sense. First, he doesn’t take the reins if elected until February, so nothing will change until then. I wouldn’t also speculate as to what happened last time in 2016, as markets were totally in a different place, with US treasury yields trading at a 1% handle and stocks having roughly half the value they trade now. All I know is that it will invoke a bit more volatility around things, and that’s a good thing. Markets have become boring and one-sided. We like two-way action.
Let’s now hear from Macro D and his latest thoughts before we go through the entire book of charts to study. Also, please read his latest thought piece below. It’s an important one as we shape the macro landscape into the second half of this year.
By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published.
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.
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.