30.11.2022, 23:42
November in global macro was extremely interesting - let's dissect what happened and what might lie ahead.
The picture below is a screenshot of the Macro section of my Volatility-Adjusted Market Dashboard (VAMD): in this case, it shows the rolling 30-days move across different macro asset classes.
Most importantly, it color-codes them based on the magnitude of the move: the darker the color, the bigger the move in standard deviation terms.
Let's have a look at the red boxes.
Yield curves aggressively flattened (2-3+ standard deviation moves) in both Europe and the US - the 10y-2y slope of the OIS yield curve in the US is now a whopping -111 (!) bps: what's going on?
As incoming data keeps surprising on the downside while the Fed remains committed to keeping policy tight for long, bond markets are discounting more and more economic weakness in the years to come and hence leading to further yield curve inversions.
US housing sales are down 40% (!) YoY and the Chicago PMI just printed at levels consistent with a GFC-like recession in 2023, while Powell is still talking about Fed Funds at 5%...
On the other hand though, a ''European growth'' basket did very well: European and UK stocks higher, credit spreads tighter, and EUR/USD meaningfully up - how does this square with the rest?
First of all, markets don't trade in a vacuum but prices discount consensus and adjust to new incoming information.
In the UK, the new government is going for a much more conservative fiscal stance and in Europe the largely feared energy crisis didn't realize so far - or shall we say the risk of it was postponed by a couple of months due to mild weather.
So, what's ahead?
Looking at various signals across asset classes, markets are expecting an economic slowdown (but not a proper recession) in 2023 with Central Banks on hold/mildly accomodating in an attempt to accompany the forecasted inflation slowdown.
All very gentle and orderly.
I disagree.
My macro models are pointing to an environment similar to 2001, with a strong disinflationary recession ahead that is going to materially weaken the labor and the housing market.
How to position for it?
At The Macro Compass, we will soon release our ETF portfolio and tactical trade ideas for 2023 together with our premium macro reports and interactive macro tools.
Today is the last chance to secure the hefty early bird discount: pay only 8 months and get The Macro Compass premium content for the entire 2023.
Alfonso Peccatellio - The Macro Compass
https://www.themacrocompass.com
The picture below is a screenshot of the Macro section of my Volatility-Adjusted Market Dashboard (VAMD): in this case, it shows the rolling 30-days move across different macro asset classes.
Most importantly, it color-codes them based on the magnitude of the move: the darker the color, the bigger the move in standard deviation terms.
Let's have a look at the red boxes.
Yield curves aggressively flattened (2-3+ standard deviation moves) in both Europe and the US - the 10y-2y slope of the OIS yield curve in the US is now a whopping -111 (!) bps: what's going on?
As incoming data keeps surprising on the downside while the Fed remains committed to keeping policy tight for long, bond markets are discounting more and more economic weakness in the years to come and hence leading to further yield curve inversions.
US housing sales are down 40% (!) YoY and the Chicago PMI just printed at levels consistent with a GFC-like recession in 2023, while Powell is still talking about Fed Funds at 5%...
On the other hand though, a ''European growth'' basket did very well: European and UK stocks higher, credit spreads tighter, and EUR/USD meaningfully up - how does this square with the rest?
First of all, markets don't trade in a vacuum but prices discount consensus and adjust to new incoming information.
In the UK, the new government is going for a much more conservative fiscal stance and in Europe the largely feared energy crisis didn't realize so far - or shall we say the risk of it was postponed by a couple of months due to mild weather.
So, what's ahead?
Looking at various signals across asset classes, markets are expecting an economic slowdown (but not a proper recession) in 2023 with Central Banks on hold/mildly accomodating in an attempt to accompany the forecasted inflation slowdown.
All very gentle and orderly.
I disagree.
My macro models are pointing to an environment similar to 2001, with a strong disinflationary recession ahead that is going to materially weaken the labor and the housing market.
How to position for it?
At The Macro Compass, we will soon release our ETF portfolio and tactical trade ideas for 2023 together with our premium macro reports and interactive macro tools.
Today is the last chance to secure the hefty early bird discount: pay only 8 months and get The Macro Compass premium content for the entire 2023.
Alfonso Peccatellio - The Macro Compass
https://www.themacrocompass.com
