The Macro Compass

Welcome back to The Macro Compass. Let me cut to the chase: The Macro Trading Floor is back! TMTF was one of the most popular macro podcasts out there - I launched it with my friend Andreas Steno in 2022 and it quickly became very popular. I’d like to thank him for the great ride together. By mid-June 2023 I realized I had to focus on other urgent commitments, and hence we decided to suspend it. I...

Next week is huge: revisions to 2023 CPI, US labor market print, the Fed, and most importantly the Quarterly Refunding Announcement (QRA) everyone talks about. So I thought I’d share an initial framework for you to understand why everybody seems to care about the details of the US bond supply announced in the QRA. The key is to think of bond supply within the context of the US monetary plumbing. T...

The Fed has been running QT for a while and yet there is still abundant liquidity in the financial system. Fed’s bond holdings are down $1.3 trillion from their peak (due to QT), yet only half of this supposed tightening has actually impacted bank reserves (aka ‘’liquidity’’) which are down a meagre $0.7 trillion. This ongoing ‘’money mystery’’ has caught many off-guard, and it has helped fuel sev...

Macro investing without deeply understanding bond markets is like eating soup with a fork. You can still somehow make it, but it’s cumbersome and unproductive. We are at a crucial juncture for macro and monetary policy, which means getting a grip on bond markets is even more important. This piece will help you with that, and most importantly provide you with the right framework to use. Everyone is...

Welcome back to The Macro Compass - may 2024 be your best macro year ever! Let me get straight to the point: our models show inflation is on its way to undershoot (!) Central Banks targets in 2024. Inflation is often a monetary phenomenon: print real-economy money too quickly for the supply side of the economy to adjust, give it enough time and the only release valve will be higher prices (inflati...

As macro investors we are often inundated with flashy headlines, and recently Japan has been front and center. Yet with all this noise it’s easy to miss the forest for the trees. That’s why in this piece we will: * Explain what really drove the recent moves in JPY ; * Discuss the real underlying macro trends in Japan; * Assess what the BoJ is likely to do next; * Cover the implications for global...

‘‘Who are the biggest whales in the bond market?’’ If you’d go around and ask this question, most people would tell you that’s either the Fed or foreign Central Banks like the Bank or Japan or the People’s Bank of China. That’s wrong. And the real bond market whales might develop a renewed appetite for bonds in 2024. The chart above speaks more than 1,000 words: history shows (red boxes) how 70%+...

Before we start, a short announcement: * If you are an institutional investor and you want to try my dedicated macro research, ping me on Bloomberg (Alfonso Peccatiello) for a 2-weeks free trial. I will also be in London on Dec 6 : if you want to meet for business send over an email at pro@themacrocompass.com. Now, back to the piece! Forget inflation predictably floating around 1.5% as in the last...

After years of zero interest rates such an abrupt tightening is bound to break something. The main questions are: what, when and where does something break? When rates are low credit is cheap and so financial actors tend to lever up more aggressively. Debt levels increase and so does the coverage of government debt. ''The US government will go broke'' ''This is not sustainable'' etc Yet the realit...

Hi everybody, and welcome back to The Macro Compass! I will be in New York on Oct 2-3-4 presenting my macro investment outlook to institutional clients - if you are/represent a hedge fund PM, RIA, family office, investment firm or a finance professional and you want to arrange a meeting please send an email to alf@themacrocompass.com. A brief intro and why you want to meet would be appreciated. If...

Hi all, and welcome back on The Macro Compass. Last call: there are only 53 spots (9%) left to secure your heavy discount for the TMC Bond Market Course! As a loyal TMC reader, there is an exclusive offer for you: using the coupon ‘‘BOND500’’ at checkout you can claim a chunky 25% off! You can watch the course and download the material anytime you want, but this exclusive offer won’t be there fore...

Hi all, and welcome back on The Macro Compass. Quick reminder: The TMC Bond Market Course is out, and the heavily discounted spots are running off fast! As a loyal TMC reader, there is an exclusive offer for you: using the coupon ‘‘BOND500’’ at checkout you can claim a chunky 25% off! The offer though is spot-limited: out of the 500 available spots only 223 are left (55% already taken in 3 days)....

Are we back in 2011 or what? After the US debt ceiling drama earlier this year we just witnessed a rating agency downgrading the US exactly like in 2011 – back then S&P, this time Fitch. Today you are likely to read plenty of scary and fear-mongering headlines. In this piece instead we’ll take a step back and rationally assess what the US downgrade means for investors and markets out there. A few...

The big Central Bank week is here: ECB, BoJ, Fed…wow! Well…if you are an institutional investor who enjoys my macro analysis, I have great news for you! I just launched a live Bloomberg chat service and institutional research service dedicated to you! I'll cover macro, Central Bank and market events daily through an interactive BBG chat and deliver institutional-focused macro research pieces - pin...

‘’I compile statistics on my traders. My best trader makes money only 63 percent of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better be sure your losses are as small as they can be, and that your winners are bigger.’’ – Steve Cohen, Point72 hedge fund founder This is a hard truth to accept for many macro...

Thanks for reading this piece and supporting The Macro Compass! :) If you are an institutional investor enjoying these free previews and you want info on our dedicated services, feel free to send us an email at pro@themacrocompass.com . Imagine you are about to pause a hiking cycle and in the run-up to the event you have stock markets pushing higher and animal spirits running loose: what do you do...

The pace of the upcoming disinflationary impulse is likely to surprise many: most of our TMC models and leading indicators confirm our call for US core CPI to be in the 3% area by December, and to drop at or below Fed target in early 2024 already. We believe markets are far from fully appreciating this major disinflationary impulse which brings important implications for macro portfolios. Let’s re...

Assuming no last minute surprises, it seems like we might be getting a debt ceiling deal in the US which means you should be prepared to get overwhelmed with financial commentators’ takes about ‘’liquidity’’. The very unnuanced story goes like: the government needs to rebuild its Treasury General Account (TGA) buffer at the Fed so it issues bonds and it drains ‘’liquidity’’ from the ‘’system’’. An...

Hey everybody! Before we start, a quick announcement. I just launched The Macro Compass YouTube channel! Every week I will release a 10-minute video that breaks down the most important macroeconomic and market developments - no jargon, in plain English and with the use of plenty of charts! It’s of course free, so what’s your excuse for not subscribing? :)This is the link to the channel. The FX mar...

The US is dangerously close to triggering its debt ceiling limit , and yet markets seem very relaxed. The 2011 episode shows us how political incentive schemes can instead drag negotiations until the very last minute , and force investors to price in a more meaningful probability of an actual bad outcome. So, let’s have a look at: * The actual mechanics of government spending and the meaning of a...

Our economic system is ultra-financialized and dependent on leverage. That’s why understanding the incentive scheme for both investors and borrowers is an important step to piece the global macro puzzle together. Real yields play a crucial role in that puzzle. Rule #1: you can’t calculate real yields by subtracting today’s inflation from long-term interest rates! The right formula to calculate rea...

Investors have been asking themselves when and if are we going to see a real credit crunch. I think that’s the wrong way to phrase the question. Data shows we are already in a credit crunch. The real questions to ask are how badly and when is it going to affect the economy and markets. Let’s try to answer both questions together. Why so much attention on credit creation in the first place? A fiat...

Most likely, this was the last Fed hike of this tightening cycle. Even before the press conference, the omission of the key sentence ‘’some additional policy firming may be warranted’’ from the statement release was a clear signal. Moreover, the statement about what comes next was eerily similar to the one used in June 2006 when the Fed paused its hiking cycle for 13 months. At this point, the bas...

Welcome back to another episode of our TMC Macro Education Series. Before we dive into it, a quick reminder : if you enjoy these educational pieces and you haven’t subscribed yet to The Macro Compass premium platform……well, what are you waiting for? Come join thousands of investors receiving unique, jargon-free macro insights and actionable investment strategy for their portfolios every week! For...

The S&P 500 has recently tested the 4,200 area after rallying all the way from the lows seen in late 2022. With the Fed probably delivering its last rate hike in May and the US economy staying clear from a recession so far, investors are grappling with a key question. Are we looking at a new bull market or is this just another (looong) bear market rally ? In this piece, we will: * Discuss the pros...