Trade: Update
Risk Flows and Equities
One of the most important developments we are seeing right now is how inflation risk is being priced in the market right now. Inflation swaps have rallied with 1 year inflation swaps moving ABOVE 2 year inflation swaps. This means there is a marginal degree of imbalance in the inflation swap curve. In other words, the market is pricing short-term inflation risk.
This has taken place as the forward curve is now pricing a total of 37.9bps of cuts for 2025 and there are still 27 days left till the next FOMC meeting:
(See all Macro Tear Sheets here)
In this context, the FOMC minutes came out today with a bent slightly focused on pausing QT:
We continue to see the short term XCCY move marginally higher and remain elevated:
And the longer term begin pushing up from the bottom of the range:
The collocation of positive growth, positive inflation, and a pause by the Fed creates a specific skew for risk assets.
Trades:
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