The Stage Is Set For Higher Volatility Across Asset Classes! Photo by Vu Nguyen on Unsplash In what many market participants call “Operation Say Nothing”, the busiest week in the Central Banks Universe was marked by CBs Ex-Japan “NOT” committing anything and dumping the forward guidance. The data-dependent approach (also meeting by meeting approach), first popularized by Christian Lagarde, has now landed in the USA as JayPo refused to divulge the future rate hike details. The ECB did something intriguing apart from the expected 25 bps

The “Narratives” Point To An Implausible Scenario! Photo by Abhishek Singh on Unsplash “Once in a while, right in the middle of an ordinary life, God gives you a fairytale.”- Unknown. The human mind is designed to concentrate exclusively on a few things at a particular time. If you inundate it with a flood of narratives: the result is confusion which leads to an erroneous decision, thus benefiting those who spread those narratives. The current narrative being promoted by the who’s who of the finance world is the imminent “soft landing” (inflation will be brought under control without sacrificing growth and keeping a lid on the unemployment rate) that the US economy will undergo. The social media b

Is The Inflection Point Near? Photo by Karine Germain on Unsplash The first week of every month is the most important for macro traders/investors as we get the critical data that the central banks all around keep a close watch on. The bond and equity markets react violently as rates expectation swiftly moves , and the equity markets “generally” follows the credit markets (barring episodes when the liquidity Tsunami rules the streets). This week was quite eventful across asset markets as the 10Y yield in the West created havoc. In the UK, yields ripped as persistent core inflationary pressures led to markets pricing in a 6.5% terminal rate, significantly higher than the US. In the

This Central Bank Is Repeating The Mistake Committed By Western CBs! Photo by jun rong loo on Unsplash Central Banks across the West (Fed, BoC, ECB and BoE) committed a significant blunder in 2021 when they termed inflation “transitory” and let it run wild. In fact, the Fed was buying Mortgage Backed Securities (MBS) and expanding its balance sheet under its colossal QE program last year when inflation was highest since the 70s. The post covid fiscal and monetary excesses were the principal reasons inflation became a monster. The inflationary fire was exacerbated by the rhetoric that CBs undertook early in the fight while ignoring the repercussions of their actions. As a result, the

The $10 Trillion Hidden Debt Problem! Photo by Henry & Co. on Unsplash One of my top 10 read pieces is “Canary In The Coal Mine”, which I wrote last year, demystifying the “troublesome” Chinese property sector. Some people would argue that Chinese Real Estate (RE) forms a small share of the total RE wealth globally; however, one can’t ignore the gargantuan building spree that China has undertaken in the last two decades. China was solely responsible for the commodity bull market that ensued in the first decade of the 21st century. Nevertheless, as the Chinese RE sector peaked and indicated the first signs

Are You Ready For What’s Coming? As we reach the end of the first half of this roller coaster year, and as the transmission of the monetary policy ensues, the macro picture across the world is now conveying clear signals about the future trajectory of growth and inflation. Inflation, as expected, is finally behaving thanks to a confluence of factors, whereas growth is grinding to a halt as consumers run out of excess savings and the labor market loses steam, albeit slowly. With this backdrop, today, we will dig deeper into the economic data of the past two weeks and look at where we stand today across the credit markets. US Economic Data! Last week we got the Fed’s most preferred inflation indicator: The Personal Consumption Expenditure (PCE). As the CPI is marred with

The Speculative Orgy Is Gripping The Markets! Source: AI-Generated Image “Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”- Alan Greenspan; December 5, 1996. One of the longest-serving Fed Chair, Alan Greenspan, coined the term “Irrational Exuberance” in the run-up to the most significant stock market bubble in 2001, the “

The Data From West to East Is Concerning! “Liquidity is like a cab in New York on a rainy night. It disappears when you need it the most” — J.P. Morgan. The adage in the financial markets is that credit markets always lead the equity markets. The beauty of credit markets is that it’s all about the availability of liquidity at the desired cost, which is the function of “trust”. A minor crisis gets morphed into bigger one if the trust vaporises from the credit and financial markets. It always starts with the build-up of pessimism in the economy, and as the sentiment turns sour, the credit to the economy dries. We are witnessing early signs of credit tightening in the economy, and as the transmission of tighter monetary policy happens, the growth has begun to crumble in the&nb

Curtains Down On The Unprecedented Central Banks Action! Photo by Crawford Jolly on Unsplash The last two weeks were one of the busiest as prominent Central Banks worldwide announced their monetary policies. There were some nasty surprises, and the markets across assets (FX and Bonds) were roiled. Along with the CB decisions, a host of vital data was released demonstrating that there are emerging signs of bottoming out and inflationary pressures building, leading to market participants calling out for a stagflationary outcom

“Deception is one of the quickest ways to gain little things and lose big things”- Thomas Sowell. Gabriel-jimenez, Unsplash Religious ideologies clash across the spectrum as cultures across the world maintain their traditions depending on the geography one resides. Scrolling back the history books, the one standard ritual among our ancestors in Rome, Egypt, Mongolia or India was that they sacredly worshipped the nature Gods. They were thoughtful of the fact that there is no life without the fundamental ingredients of sun, air, land and water. Hence, the concept of “Ashes to Ashes, Dust to Dust” was born. The phrase refers to the truth that humans are born from dust (Our bodily elements: hydrogen, carbon, calcium, etc., are similar to stars), and one day, eventually, every hu

There Is A Compelling Case For A Fed Action Which Will Create Ripples Across Global Financial System! 1940’s NYSE Trading Floor The present business cycle is exceptionally unusual as it has elements of the 40s fiscal recklessness, 70’s energy crisis and stagflationary period along with multiple variable lags, making it crucial to analyze the various moving parts in depth and then join the dots. The data indicates that the dislocation across the supply chains caused by a ruthless pandemic has now healed. Nevertheless, the war and the subsequent sanctions on the FX reserves of Russia created FUD (Fear, Uncertainty and Doubt) among nations about the US being the safest destination to invest their surplus dollars. Among all the chaos, the macro environment continues to deteriora

What A Week It Has Been! Photo by Austin Chan on  Unsplash As the dark clouds of the banking mess that rattled the markets swayed away, the markets focus shifted back to the macro data and the updates in energy markets this week. Most of the economic data shocked the street. I have repeatedly reiterated that the monetary transmission acts with a 2–3 quarter lag, and the leading indicators were all flashing red. The red flags are now emerging in the lagging data of labor market as well. We are gradually reaching a point where the data worsens, inflation moves down to 4% (due to base effects and growth plunge), and the bond markets f

What A Week It Has Been! Photo by Austin Chan on  Unsplash As the dark clouds of the banking mess that rattled the markets swayed away, the markets focus shifted back to the macro data and the updates in energy markets this week. Most of the economic data shocked the street. I have repeatedly reiterated that the monetary transmission acts with a 2–3 quarter lag, and the leading indicators were all flashing red. The red flags are now emerging in the lagging data of labor market as well. We are gradually reaching a point where the data worsens, inflation moves down to 4% (due to base effects and growth plunge), and the bond markets f

Are You Ready? “How did you go bankrupt?” “Two ways. Gradually, then suddenly.”- Ernest Hemingway. The recent events that have unfolded in the last month have everyone left wondering about the dominos that will fall next as the transmission of the unprecedented tightening of the monetary policy slowly seeps into the economy. Analysts, journalists and other famed market participants have now begun to scratch their heads and use their microscopic lenses to look in detail about the next time bomb to explode in the financial markets. If you haven’t watched the movie “The Big Short” until now, I recommend watching it first thing this weekend and comprehending the nuances of how Michael Burry uncovered the cracks in the

Yet It Still Happened This Week! “Markets Stop Panicking When Central Banks Start Panicking.” In what could be termed as one of the most tumultuous weeks for the markets since the “black swan” event that caused a flash crash of epic proportions three years ago, the collapse of SVB initiated a sequence of events which led to historical moves in the sovereign bond markets. Though equity markets remain unnerved and the selling pressure was concentrated among the banking names, the bond markets witnessed excruciating pain. Bond markets underwent a massive panic attack as liquidity dried up and volatility surpassed unprecedented 2008 GFC levels. It was chaos on trading desks as traders who started their careers post the GFC had never encountered such violent moves and deteriorat

A Historic Policy “Blunder” By The World’s Most Powerful Central Bank? Photo by fikry anshor on Unsplash With some notable exceptions, businessmen favour free enterprise in general but are opposed to it when it comes to themselves”- Milton Friedman. Much has been said and written about the Silicon Valley Bank (SVB) collapse and the subsequent events that unfolded post the meltdown. So, I would not waste your precious time by repeating the obvious. However, we can’t ignore the precedence that the Federal Reserve has set in tack

Confused About The Global Macro Landscape? Read this! Photo by Sigmund on Unsplash Investopedia defines a business cycle as “concerted cyclical upswings and downswings in the broad measures of economic activity — output, employment, income, and sales.” A few months back, I wrote about how the “HOPE” model best explains the variable lags in the economy and is the correct sequence to identify the business cycles. Housing → Orders → Profits → Employment The biggest mystery remains where we are presently in the business cycle. Sin

The Current Paradigm Has A lot Of Moving Parts! Photo by Katie McNabb on Unsplash In today’s world of information overload, numerous narratives run wild across social media as everyone has their stakes involved: political affiliation, trading positions or arm-twisting from the top brass at big firms. Undoubtedly, the noise is excruciating for someone looking to get a fair view of the markets and position their portfolio according to the incoming macro data. While connecting the dots, you can’t be 100% correct, and life, as

The Current Paradigm Has A lot Of Moving Parts! Photo by Katie McNabb on Unsplash In today’s world of information overload, numerous narratives run wild across social media as everyone has their stakes involved: political affiliation, trading positions or arm-twisting from the top brass at big firms. Undoubtedly, the noise is excruciating for someone looking to get a fair view of the markets and position their portfolio according to the incoming macro data. While connecting the dots, you can’t be 100% correct, and life, as

Markets Are Not Ready For What Is Coming! Photo by Jim Wilson on Unsplash “And it is our judgment that we’re not yet at a sufficiently restrictive policy stance, which is why we say that we expect ongoing hikes will be appropriate.”-Jerome Powell. A mind-blowing Non-Farm Payrolls Number (NFP), a significant easing of financial conditions thanks to tighter credit spreads and an unbelievable rally in stocks, a slight recovery in housing and auto sales and a bump in Services PMI: The data releases in the past fortnight point out that the