Macro Report/Insights: Rate Cuts/Speed
Updates on positioning
It has been clear that we are in Goldilocks and bonds are bullish on a cyclical basis:
Trades: Pulling the Trigger / Long Bonds
Today was a significant day Why? Because there was clear confirmation that we are in goldilocks. What does that mean? It means a regime where growth is resilient, inflation is falling and cuts are on the table. Cuts are on the table because of a fall in inflation, NOT because the world is falling apart.
The key for moving forward is managing the oscillations in bonds which will be caused by the SPEED of rate cuts getting priced in. The strategy for managing this SPEED and Goldilocks macro regime was laid out in the macro report:
Comprehensive Macro Report: Structural Support and Cyclical Trends
We are starting 2024 strong by quantifying the structural dynamics in the US economy and connecting them with cyclical trends. I write a monthly macro report breaking down growth, inflation, and liquidity to show how they impact each major asset class. If you want to see the previous macro report, here are the links:
We just had a CPI print come in above expectations and then the PPI this morning. Where are we now with the SPEED of rate cuts? Well the market is now pricing a 81% probability of an interest rate cut by the FED in March.
This is why the yield curve has been steepening
And why the 2 year is moving down:
This is the direct driver of flows in FX and metals:
It is also directly connected to flows in equities:
As I stated in the macro report, bonds are skewed to the upside and equities are likely to make ATH in Q1 of 2024. We will be entering the window of silence before FOMC soon. If we enter this window without the FED making a clear effort to shake out the Marc rate cut, we are very likely to have the cut realized in March.
Given the recent developments, it looks like we will actually get the March rate cut. Everyone got hyped up on the fact that the FED dot plot indicated 3 cuts while the market was pricing 6. I would not be surprised to see 6 cuts this year if we get below 3% in core CPI.
Strategy:
I am going to share the specific signals and how I am approaching the time between now and FOMC.
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