Mid-Week Update
April 8, 2025
Welcome to all new subscribers to this space. I have been fairly busy over the past few days thinking about everything that is going on and things that are not going on but maybe should. By now, all readers should be fully familiar with the macro roadmap that I have laid out, which you can find in the following piece I wrote on April Fools. Luckily, the ongoing market turbulence should have seen positive outcomes for those who followed this script.
Waiting for April Fools + 1
With quarter end now firmly behind us, we and everyone else are awaiting April 2nd and with it the potential repercussions. A seismic event for financial markets or just another one of those unclear presidential communications where everything is still very much up to interpretation? I am not sure financial markets want to grapple with continued uncertainty and are pricing in enough event risk premia in case we are indeed presented with a historical event. I wrote about it in
Admittedly, I felt a bit overconfident in calling it a blueprint, as this would infer a certainty, based on historical precedents, of what was about to unfold. Macro D and I have been banging on about the trifecta of economic, political and social change that macro investors will have to navigate from here onwards. This has now been set in motion. People are scrambling; economists are unsure about inflation vs. deflationary impulses, understandably so. It’s hard to see through all the ongoing noise. You need a framework.
It’s surprising that US 10-year yields are up compared to a week ago while US stocks have shed more than 10%. I didn’t see that coming, but it raises my point in the macro roadmap that US assets will come under pressure and that bonds will not offer the same diversification benefits.
What’s going on in bonds? They started reversing partly on Friday and then on Monday, as inflation swaps reversed lower, raising real rates in the process. These are all signs of liquidity stresses in the system, possibly due to margin call requirements requiring funds to sell Treasuries held as collateral and de-risking of risk parity funds, which hold rates as part of their portfolio construction.
Yield curves have been steepening profusely. The short-end at one point (US 2-year yields) traded at levels last seen before liberation day. That doesn’t make much sense to me.
posted a must-read thought piece which highlights his analysis that the whole game at play is really about isolating and weakening China in the process. That makes sense, as China is economically weak just as hefty tariffs are being implemented. The currency has been weakening in the process, and there is further speculation of a potential devaluation.
There was speculation about China and other foreign reserve managers dumping Treasury bonds. I don’t know whether that is true, but these narratives can feed on themselves. Certainly, going forward, the role of US Treasuries as the safe and collateral asset will have to be questioned. What can replace it? Gold played a part in this as it outperformed US Treasury bonds in the process. I would expect this to continue.
US Stocks looked ripe for a relief rally, and the good old turnaround Tuesday seemed locked in, but it got shattered into the close. People want to get out. Is there a silver lining? Those following my work know that we have a reversal model that scans markets for exhaustion patterns. Given the severity of the move, it is tough to time this to perfection. Instead, we can observe different conditions in place to strengthen the probability of a bounce. Let’s have a look at a few before we read some of Macro D’s thoughts on the latest developments.
There has never been a better time for macro investors. But macro isn’t just buying dips and venturing into markets without a process and framework. We try to keep it simple here to get new and seasoned investors quality and actionable insights on a weekly basis. The principles of this place have been set since we started, and they will never change. Come join us on the journey.