The Macro Compass

Brazilian President Lula recently asked the following questions: ‘’Every night I ask myself why should every country have to be tied to the US Dollar for trade?’’‘’Why can’t we trade in our own currency?’’‘’Why can’t a BRICS Central Bank have a currency to finance trade between BRICS countries?’’ Lula’s speech sparked yet another mediatic hype on the upcoming De-Dollarization. So, let’s explain ho...

Hedge funds are often called fast or smart money because they are one step ahead of herd market thinking. I am blessed with the opportunity to have several of them as clients, and pick up their brains on what they are watching in markets and what the next big macro trade might be. In this piece, I will share with you 5 macro developments and charts hedge funds are watching . 1.    Are you watching...

Hey guys! Before we start, an important announcement: welcome to the first piece of the TMC Macro Education Series! Once a week, I will deliver some bonus educational content covering big picture macro trends, the bond market, monetary mechanics, risk management and more in a quick, 5-min read. Financial education is a key TMC principle – hence the Macro Education Series is and will always remain...

Before we start, a quick announcement: starting this week, I’ll be kicking off The Macro Education series! I will publish short and educational pieces covering the bond market, monetary mechanics, portfolio construction, risk management and much more. It will be and it will forever remain FREE .Looking forward to share some educational macro insights with this nice community! When the yield curve...

Soft landing, no landing at all, banking crisis leading to an immediate recession. Chinese reopening yes, reopening no. S&P 3850, 4200, no again 3850, wait it’s back up to 4150. Push & pull macro and market dynamics dominated Q1, leaving investors confused on how to approach Q2 . This is why in this piece we will: * Quickly review Q1 through the lenses of Volatility-Adjusted market performance acr...

The world is big , and macro investment opportunities pop up where you least expect them. Looking beyond the US and focusing on true global macro is an underrated and fruitful exercise. So, let’s do that. In this piece, we will cover the latest macro developments and discuss trading opportunities in Europe, China, Japan …and yes, ok, we will sneak in a quick word about US liquidity too – very impo...

In 1992, judge Giovanni Falcone was killed by the Sicilian mafia. Falcone and his colleague Borsellino were at forefront of major investigations that uncovered much of the mafia’s business and led to the incarceration of many criminals. His method was pretty simple: follow the money, find the mafia. The same methodology can be very useful in understanding the real extent of today’s banking stress,...

The Fed understands that banking stress is ultimately disinflationary as the flow of credit to the real economy slows down and so does economic activity, and inflation with it. Markets are now busy interpreting what it all means, and this is why in this timely piece we will: * Discuss the 2 most important takeaways from the Fed meeting; * Assess market reactions across asset classes, with a partic...

The giant Swiss bank Credit Suisse is no more. Central Bankers have announced several facilities during weekends to calm markets down. The 2008 vibes are very strong – what now? In this piece, we will provide you with a level-headed analysis of: * The Credit Suisse deal, including its repercussions on the broader European bank and credit markets; * The scope and effectiveness of the Fed’s BTFP fac...

Market pressures on US banks are now spreading to Europe , where the already troubled Credit Suisse asked the Swiss government for help and got a liquidity boost. Investors are asking the tough questions now, which means the moment of truth looms large. Data-driven, holistic macro analysis is crucial to correctly answer these questions. In this piece, we will: * Review the current banking situatio...

If a couple of regional banks were so bad at managing their interest rate risk and deposit outflow risk to blow up in a few hours, how can we really be sure other banks won’t face similar problems? Having run a large investment portfolio at a European bank and been part of the management for the Treasury department, I will try to use my practical experience to provide you with: * A quick primer on...

Silicon Valley Bank went belly up in about 30 hours. And no, it’s not the Fed’s fault. It’s the result of a very concentrated funding base , embarrassingly bad market risk management and a ton of moral hazard at play. This piece will attempt at answering the questions all of us have been asking: * What exactly went so wrong for a $200bn+ balance sheet bank to go down so fast ? * How serious are th...

Money creation is king. It leads economic activity and therefore financial markets performance. That’s why despite following countless macro data, market practitioners often pay particular attention to indicators tracking ‘’money printing’’. But money isn’t a trivial topic: how do we correctly measure money creation for the real economy? Which countries are printing more or less money today? What...

Hi everybody, and welcome back to The Macro Compass! Economic data is surprising on the upside , and markets are busy trying to digest what this means for the Fed. Terminal rates are now priced well over 5% in the US and now around 4% in Europe, and bond traders are quickly dismissing all cuts in 2023 too. So, have we avoided a recession for good and how resilient is the global economy to higher i...

Hi everybody, and welcome back to The Macro Compass! Most macro commentary focuses on the US. But over the last few months, the real golden kid has been Europe. Recently the EUR has appreciated 10%+ against the US Dollar, macro data seems to suggest a recession has been avoided and the European stock market is on a roll having outperformed the S&P500 and other peers. For foreign macro practitioner...

Hi everybody, and welcome back to The Macro Compass! There is a time to be long, a time to be short and a time to go fishing. As inflation skyrocketed and the Fed turned hawkish, bonds were kryptonite for investors for most of 2022: it was time to be short. Between October 2022 and today we have instead seen inflationary pressures somehow moderate but the economy hanging in there, with 10y Treasur...

This is a free full-length piece available to everybody. If you find it valuable, consider subscribing to the premium TMC service. On the premium The Macro Compass platform, we do the hard work to deliver high-quality macro insights, tools and actionable investment strategy week in and week out. Institutional-level macro strategy in plain English at a fraction of the cost. Hi everybody, and welcom...

Hi everybody, and welcome back to The Macro Compass! We are at that funny phase of the cycle when we look at the most lagging macro indicator (inflation) to assess how late the Fed is going to be this time. In 2021 , a gigantic amount of fiscal stimulus and credit creation led to a red-hot economy and yet the Fed was still doing QE and imposing negative real rates – because you know, inflation was...

Hi everybody, and welcome back to The Macro Compass! Our base case remains negative EPS growth and higher unemployment rate from May/June 2023. In other words: a recession. But what if we are wrong? In this piece, we will: * Refresh some of our key indicators to assess where are we in this macro cycle ; * Update the probability and timing of a US recession ; * Unveil our main tactical trade idea ....

Hi everybody, and welcome back to The Macro Compass! Last week, FOMO (Fear Of Missing Out) became the prevalent market narrative. As data seemed to further validate the soft landing narrative and Central Bankers became ‘’data dependent’’, markets are FOMO-ing like it’s 2019 again . But 2023 isn’t 2019 – for many macro reasons we are going to touch upon. In this article, we will: * Reflect on last...

Hi everybody, and welcome back to The Macro Compass! Powell didn’t push back enough, and so markets are now rallying hard in his face. And given J-Pow’s lack of real pushback, markets won’t stop unless data comes in very hot (or recessionary). The window for the soft landing narrative is now extended. With one caveat: the narrative is very misplaced. In this piece, we will: * Dissect the Fed meeti...

Hi everybody, and welcome back to The Macro Compass! The Fed intends to drain ‘’liquidity’’ at a rapid pace in 2023. And while the pace might be more friendly for the next months , don’t get distracted. Banks, the repo market and Wall Street will soon start feeling the heat. In this piece, we will: * Explain what ‘‘liquidity’’ really is in plain English; * Go over the drivers of US liquidity in 20...

Hi nice people, and welcome back to The Macro Compass. This is an old-style free macro piece for everybody - enjoy! The soft landing crew is increasingly taking over. No, the bond market’s base case is not a recession - it’s immaculate disinflation. Yes, getting this call right is crucial for your portfolio performance in 2023. In this article, we will: * Look at different corners of the bond and...

Hi everybody, and welcome back to The Macro Compass! Markets are front-loading the Fed pivot, and it’s a bad idea. In this piece, we will: * Have a look at the last US inflation report; * Answer the big question: Powell pivoted in 2019, is he going for it again in 2023? * Analyze what’s priced in for bonds and equity markets: a recession, Goldilocks or what regime exactly? * Conclude by refreshing...

Hi everybody, and welcome back to The Macro Compass! The Three Main Themes of 2023 Last week’s macro data releases provided relevant support to our three most important thesis to start 2023: 1) US nominal growth is fast decelerating Evidence was provided by sharply declining services PMI and lower momentum of Non-Farm Payrolls : the rate of change for real growth is negative. Moderating wage growt...