The livestream today broke down WHERE interest rate risk is building in the system and WHY the next macro shock is likely to come from interest rate volatility repricing off historically low levels.
Main takeaways from the macro playbook section:
The NFP print set a short term top in both bonds and equities, and the FOMC level in bonds is now the line that defines interest rate risk into this week.
Everyone in the system is structurally short interest rates through mortgages, corporate debt, and leverage, so a repricing of rate volatility hits far more portfolios than people expect.
Interest rate volatility is far too low against an economy this resilient. The MOVE index sitting at the lows while growth runs in excess of leverage compresses the spring, and a money impulse or a supply shock through crude takes rates and blows them out.
The yield curve regime indicator shows the downward moves in bonds are being driven by bear steepening. The long end is saying the Fed is not restrictive enough, and the code for the indicator is free in the Substack chat.
Government outlays are accelerating on both an outright basis and as a share of GDP, which forces a higher premium into long end rates. The deeper mechanic is the trade war: when foreign savings flood into the country, someone has to run a matching deficit, and since the household sector deleveraged after 2008 that borrower has been the US government while China suppresses its currency to hold the imbalance in place.
The highs and lows in the S&P and the Russell are directly connected to the highs and lows in bonds right now. Trading ES without watching bonds means missing half the picture.
You can find the free recording on the Currency Wars Playbook here in the YouTube video:
The member section connects this framework to the live regime and positioning, with the recording linked at the bottom of this report.
Inflation risk is quietly building across the global economy while positioning still assumes the disinflation trend holds. Tomorrow’s stream will map WHERE the pressure is concentrated across commodities, wages, and government spending, and WHAT it means for rates, FX, and equities.
Paid subscribers can join the livestream with this link (the first half will be free and streamed to Twitter and YouTube, where the second half will only be available on Substack for paid subscribers):
