Macro Regime Tracker: Why Is The Dollar Rallying?
Macro regime and risk assets qualified clear
The Macro Regime Tracker offers a daily lens on how shifts in growth, inflation, and liquidity affect short-term risk and reward. Leveraging machine learning, AI, and cross-asset data, it identifies macro changes and their impact on market positioning.
Macro Regime Tracker Index:
Since FOMC, we have seen the DXY rise. This is primarily driven by monetary policy differentials as opposed to a dollar shortage, causing risk off behavior in equities:
As we moved into FOMC, I explained the causal drivers behind the dollar and the potential for a bottom here:
Here is the basic idea, since the Fed and the market have baked in 2 more cuts for this year, everyone is shifting to HOW MANY cuts take place in 2026. The SOFR spread below shows how many cuts the market is pricing in 2026, all the way till Sept of 2027 (which is where the terminal rate sits). So if we assume two cuts are happening this year, as the white line in the chart below moves DOWN, we price more cuts and fuctionally inject a lower price of money into the system. Inversely, if we move UP, we are pricing fewer cuts in the system, which functionally increases the price of money in the system for dollars. The blue line in the chart below shows the same period of time in the Eurozone which has actually fallen over the last 10 trading days. The bottom line is the US as priced less cuts since FOMC while the Eurozone only moved marginally. The net result is the dollar rising against the Euro.
This is why the spread is moving in lockstep with the DXY:
Now think about this for a moment, if the Eurozone just priced marginally more cuts as the US tightened a bit, does it begin to make sense why the DAX has outperformed US equities over the last 15 or so trading days?
This is why I laid out the long DAX view in the recent macro report (for paid subscribers):
You can see we have moved in lockstep with the risk reward:
Now, to be clear, we are not seeing the stronger dollar pull broad equity indicies down. Why? Because it is a shift in monetary policy differentials, not a shortage of dollars, causing systemic risk. The effect is being felt, though, why is why we are seeing the Russell underperform the NASDAQ marginally as the dollar has been making its upward moves:
The implication of these flows is that we are NOT seeing an imminent driver that would end the bull market. I remain long and explained how I am thinking about the redundancy planning here: (baseline is remaining above the 6660 FOMC level)
As I laid out here, we remain in a very bullish environment and sentiment isn’t going to change the direction of the S&P500. The only thing that moves the market is flows. In today’s social media attention market, the bearishness or bullishness doesn’t have predictability on directionality in ES, even if it overlaps occasionally with hindsight bias.
Are We In A Bubble? AI and Macro Liquidity: Setting the Stage
Are We In A Bubble? AI and Macro Liquidity: Setting the Stage
As always, all the systematic models and strategies have been updated below. Thanks
Main Developments In Macro
US Monetary Policy & Federal Reserve
FED DISCOUNT-WINDOW LOANS $6.24B IN WEEK ENDED OCT. 8 AFTER $7.17B
FED SAYS EXPANDED HOURS WILL TAKE EFFECT NO EARLIER THAN 2028
FED ANNOUNCES FEDWIRE FUNDS, NSS HOURS CHANGE IN PRESS RELEASE
FED’S BARR: PRICE STABILITY GOAL FACES ’SIGNIFICANT RISKS’
BARR: RIGHT NOW, OUR POLICY IS PROBABLY MODESTLY RESTRICTIVE
BARR: FED SHOULD BE CAUTIOUS ABOUT ADJUSTING POLICY
BARR: WE MAY HAVE TWO ECONOMIES DEPENDING ON INCOME LEVELS
BARR: UNCLEAR IF SHUTDOWN WILL HAVE NOTICEABLE IMPACT ON GROWTH
WILLIAMS: APPROPRIATE FOR RATES BACK TO `NEUTRAL’ SETTING: NYT
WILLIAMS SIGNALS GOVT DATA LAPSE WOULDN’T DETER FROM ACTION:NYT
WILLIAMS FOCUSED ON RISKS OF FURTHER LABOR SLOWDOWN: NYT
WILLIAMS: INFLATION OUTLOOK NOT AS DIRE AS EARLIER IN YEAR: NYT
WILLIAMS SEES FED HAS FLEXIBILITY TO SHORE UP LABOR MARKET: NYT
FED’S WILLIAMS SUPPORTS FURTHER INTEREST RATES CUTS THIS YR:NYT
FED’S WILLIAMS SUPPORTS FURTHER INTEREST RATES CUTS: NYT
US Fiscal, Political & Regulatory Developments
SENATORS IN TALKS ON MAKING OFFER TO DEMOCRATS ON VOTE: SEMAFOR
SENATE GOP MULL FUTURE VOTE ON EXTENDING ACA SUBSIDIES: SEMAFOR
DOJ LAUNCHES INQUIRY INTO FIRST BRANDS GROUP’S COLLAPSE: FT
US JUSTICE DEPT LAUNCHES INQUIRY INTO FIRST BRANDS GROUP: FT
US WEIGHS ACTION AGAINST CHINA-CONNECTED ROUTER GIANT TP-LINK
INVESCO SEPT. MONEY MARKET NET OUTFLOWS $2B
US Trade, Technology & Corporate
MICROSOFT FORECASTS SHOW DATA CENTER CRUNCH PERSISTS INTO 2026
SOME CUSTOMERS TURN AWAY FROM AZURE ON CLOUD CONSTRAINTS
VENTURE GLOBAL SUFFERS DEFEAT IN BP LNG ARBITRATION
CANADA’S BAYTEX ENERGY WEIGHS $3 BILLION EXIT OF US OPERATIONS
US Foreign Policy & Geopolitics
TRUMP: MIGHT DO MORE RUSSIA SANCTIONS
TRUMP: WE’RE STEPPING UP THE PRESSURE FOR UKRAINE DEAL
TRUMP: WOULD LOOK AT PALESTINIAN STATEHOOD ‘AT THE TIME’
TRUMP: STRICT DEADLINE ON HOSTAGE RELEASE IS MONDAY OR TUESDAY
TRUMP: HOSTAGES TO BE RELEASED MONDAY, TUESDAY; I’LL BE THERE
TRUMP: PLANNING ON GOING TO MIDDLE EAST SOMETIME SUNDAY
TRUMP: TRIP WOULD BE TO EGYPT, TO HAVE AN OFFICIAL SIGNING
TRUMP: LAST NIGHT WE REACHED MOMENTOUS MIDEAST BREAKTHROUGH
TRUMP: ISRAEL INVITED HIM TO SPEAK AT KNESSET, HE AGREED
TRUMP: IRAN WANTS TO WORK ON PEACE NOW
TRUMP: WE’D LIKE TO SEE IRAN REBUILD COUNTRY TOO
TRUMP: BUYING THE FINEST ICEBREAKERS IN THE WORLD
TRUMP: WE’RE BUYING ICEBREAKERS, BUILDING THEM WITH FINLAND
STUBB: WILL BUILD 11 ICEBREAKERS WITH THE US
STUBB: IT’S ‘CORRECT’ FOR EUROPE TO NOT BUY RUSSIAN OIL, GAS
STUBB CONGRATULATES TRUMP ON ‘HISTORIC’ GAZA DEAL
US AND SAUDI ARABIA MAKING PROGRESS ON CHIP DEAL: WSJ
US AND SAUDI ARABIA COULD FINALIZE A DEAL SOON: WSJ
US FINALIZES $20B CURRENCY SWAP LINE FRAMEWORK WITH ARGENTINA
US TREASURY INTERVENED IN ARGENTINA FX MARKETS ON THURSDAY
US TREASURY INTERVENED IN ARGENTINA FX MARKET: LA NACION
BESSENT: FINALIZED A $20 BILLION CURRENCY SWAP FRAMEWORK
BESSENT: DISCUSSED ARGENTINA’S STRONG ECONOMIC FUNDAMENTALS
MILEI THANKS BESSENT FOR STRONG SUPPORT FOR ARGENTINA
ARGENTINA BONDS ACCELERATE GAINS; 2035 NOTES UP 5 CENTS
ARGENTINE PESO TUMBLES 2.7% AT THE START OF TRADING
BRAZIL, US TEAMS TO MEET SOON IN WASHINGTON: BRAZIL MINISTRY
BRAZIL SAYS FOREIGN MINISTER VIEIRA HAD PHONE CALL WITH RUBIO
GAZPROM CEO, TURKEY ENERGY MINISTER DISCUSS GAS COOPERATION
Middle East Peace & Geopolitical Risk
HAMAS NEGOTIATING CHIEF SAYS AGREED TO OPEN RAFAH CROSSING
HAMAS NEGOTIATING CHIEF ANNOUNCES DEAL TO END WAR WITH ISRAEL
HOUTHIS SIGNAL HALT TO MILITARY OPS IF GAZA CEASEFIRE HOLDS
KALLAS: FIRST STAGE OF GAZA DEAL IS MAJOR STEP TOWARDS PEACE
ISRAEL PRESIDENT’S OFFICE SAYS TRUMP TO VISIT ISRAEL
ISRAEL FOREIGN MINISTER SA’AR SPEAKS TO FOX NEWS
SA’AR: REDEPLOYMENT IMMEDIATELY WITHIN 24HRS AFTER GOVT AGREES
SA’AR: TO IMMEDIATELY HAVE CEASEFIRE AFTER GOVT APPROVES DEAL
ISRAEL FOREIGN MINISTER SA’AR: WE ARE COMMITTED TO TRUMP’S PLAN
JOHNSON: TRUMP CALLED ME LAST NIGHT AFTER PEACE DEAL WAS DONE
JOHNSON: TRUMP AND I LAMENTED THE ‘TERRIBLE’ SHUTDOWN SITUATION
MODI: CONGRATULATED TRUMP ON GAZA PEACE PLAN
Global Central Banks & Macro Policy
ECB’S ESCRIVA: INFLATION IS ALREADY AT 2%
A FEW ECB OFFICIALS VIEWED INFLATION RISKS TILTED TO UPSIDE
BOE’S MANN: LABOR MARKET SOFTENING, BUT CPI WELL ABOVE TARGET
BOE’S MANN: UK INFLATION PERSISTENT, GROWTH OUTLOOK MODEST
MEXICAN CENTRAL BANK PUBLISHES MINUTES TO SEPTEMBER MEETING
TAKAICHI: WEAK YEN HAS BOTH MERITS AND DEMERITS
TAKAICHI: NO IMMEDIATE NEED TO REVISE BOJ-GOVERNMENT ACCORD
TAKAICHI: NOT IN POSITION TO COMMENT ON RATE HIKE
Macro Tear Sheets: Equities, Stock/Bond Correlation, Fixed Income, FX, Crypto, and Commodities
Macro Regime Dashboard: Excel spreadsheet for economic data, interest rates, and real estate.
Momentum and Mean Reversion Models: Equities, Commodities, Fixed Income, and Currencies
You can find the educational primer and video explanation of these models here: LINK
Growth, Inflation, Fixed Income, Credit, and Equities Regime Tracker
The Macro Regime Model offers a real-time view of growth, inflation, and yield curve dynamics, integrating these with credit market shifts, equity risk premiums, and positioning data. It connects upcoming catalysts to statistical drivers of asset prices, creating a unified framework that quantifies skew and clarifies risk-reward across asset classes.
Key Points To Set The Context:
US Market Wrap: Broad Pullback as Cyclicals Slide, Dollar Firms (S&P −0.40%)
The index cooled as rising yields and a firmer dollar nudged crowded AI/growth leadership to pause while cyclicals did the heavy lifting on the downside. Breadth weakened: seven sectors fell, with Energy, Industrials, and Materials leading declines. Fed rhetoric stayed easing-biased (Williams), but with data visibility still patchy, earnings are set to carry more macro weight near-term.
Sector Attribution
Weighted Return Contribution (to S&P −0.40%)
Leaders: Consumer Discretionary (+0.03%), Consumer Staples (+0.01%), Communication Services (+0.01%)
Laggards: Industrials (−0.14%), Financials (−0.08%), Info Tech (−0.08%), Energy (−0.06%), Health Care (−0.04%), Materials (−0.03%), Utilities (−0.02%), Real Estate (−0.01%)
Unweighted Performance (Breadth)
Leaders: Consumer Discretionary (+0.31%), Consumer Staples (+0.26%), Communication Services (+0.14%)
Laggards: Energy (−1.95%), Materials (−1.74%), Industrials (−1.67%), Utilities (−0.67%), Real Estate (−0.65%), Financials (−0.62%), Info Tech (−0.24%)
S&P 500 (cap-weighted): −0.40%
Macro Overlay
Flows & positioning: After a powerful run, breadth is tiring and “buy-the-dip” is meeting a bit more resistance. AI remains the secular bid, but today’s tape favored defensives at the margin while economically sensitive groups (Energy/Industrials/Materials) bore the brunt.
Rates & FX: 10-yr USTs edged up to ~4.14%, curve little changed; USD pushed to a 10-week high—both consistent with the cyclical softness in equities. Gold slipped back below $4,000/oz; oil fell as Middle East risk premia eased.
Fed tone: NY Fed’s Williams reiterated openness to more cuts this year if labor softens further. That keeps the easing bias alive, but without fresh government data, markets will lean harder on earnings and high-frequency proxies.
Earnings sensitivity: With a buyback blackout window and valuation heat, prints/guidance matter more. Tech’s capex cycle (AI infrastructure) still underpins the medium-term story, yet near-term leadership is vulnerable to any hint of margin or supply-chain strain.
The Read-Through
Concentration risk cuts both ways. When Tech isn’t carrying, the index struggles—today’s negative contribution from Info Tech plus weakness in cyclicals left the S&P in the red despite small defensive gains.
Macro still supportive but not decisive. A dovish-leaning Fed and contained long rates are tailwinds, yet a stronger dollar and stretched marks argue for consolidation over reversal.
Takeaways & Tactics
Bias: Neutral-to-constructive medium term; tactically patient near term.
Equity stance: Respect the uptrend but trim chase risk in cyclicals; let earnings reset expectations.
Pairs/overlays: Prefer quality/defensives vs. cyclicals on days when USD↑ & UST10y↑. Keep AI-infrastructure exposure core but sized for volatility.
What flips the script: Softer labor + steady inflation → leadership can re-accelerate; a hawkish rates/FX impulse or margin squeeze would extend breadth deterioration.
US IG Credit Wrap: Low-50s Hold Despite Risk-Off; Slight Widening on USD/UST Drift (IG OAS ~52.6 bp)
IG spreads nudged a touch wider but stayed firmly in the carry channel. Bloomberg US IG OAS closed around 52.6 bp (≈ +0.7 bp d/d) as a stronger dollar and a small backup in UST 10s to ~4.14% met still-dovish Fed rhetoric (Williams). The tone remains sideways, carry-first; dispersion > direction.
Where we sit (from the chart)
IG OAS: ~52.6 bp
5-yr avg: ~62.4 bp → ~9.8 bp inside
Cycle tights: 43.8 bp → ~8.8 bp off
Pandemic wides: 151.8 bp → ~99 bp tighter
(Chart stats: Last ~52.6 | High 151.8 on 03/20/20 | Avg 62.37 | Low 43.75 on 02/13/20.)
Credit Context
< 60 bp: Duration-friendly, carry-positive zone for insurers, pensions, and liability-driven buyers.
60–70 bp: Macro noise threshold, where volatility or inflation threats prompt positioning cuts.
> 90 bp: Systemic stress unlikely unless global macro or geopolitical shocks return.
Macro overlay
Equities: S&P −0.4%; leadership narrowed, cyclicals (Energy/Industrials/Materials) weak.
Rates/FX: UST10y ↑ to ~4.14%; USD at 10-week highs. Gold < $4,000; oil −1.7%.
Fed: Williams keeps an easing bias on the table if labor softens; minutes cautious but not hawkish.
Mapping to IG
Carry > convexity: Low-50s OAS keeps “clip the coupon” intact; no impulse for systemic widening.
Duration cushion: Long-end stability continues to attract A/AA long-duration demand.
Dispersion watch: Today’s cyclical equity weakness argues for BBB cyclicals (Energy/Industrials/Materials) to underperform on any further rates/FX headwind; single-name moves tied to guidance/M&A/capex.
Correlation check: USD↑ and UST10y↑ usually lean modestly wider; the move so far is orderly.
The Read-Through
Base case remains a sideways grind in the low-50s: supportive policy path, contained rates, and robust demand for high-quality carry. Near-term risk is breadth deterioration in cyclicals plus a strong USD; offset is Fed optionality and steady duration demand.
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