A global macro update.
Focusing on the daily swings might lead you to miss the forest for the trees, but we are still firmly in the secular Quadrant 1 here.
Vol has increased though, which means we are going to temporarily swing through Quadrant 4 and 3 at times.
1/7
The pace of growth of credit injection through the real economy has stalled to very low levels since mid-21.
This implies a weaker impulse to real growth and earnings until at least summer 2022...
2/7
...and a repricing down of inflation expectations too: basically, a still-okaysh nominal growth but on a clearly decelerating trend.
Lower inflation break-evens while the Fed embarks in a tightening exercise lead to higher front-end real interest rates, but...
3/7
...I still argue policy is net-net at an easy level, making my base case the secular Quadrant 1 and not the scary Quadrant 4: why?
Because
A) 5y forward 5y real yields are still 70 bps below equilibrium levels
B) The Fed will implement QT in a pretty soft fashion in '22
4/7
Tomorrow I will post a separate thread on what a ''soft QT'' looks like, but it's important to know the pace of monetary tightening is the key determinant rather than the tightening itself
Temporary episodes of risk-off (Quad4) and optimism (Quad3) will be frequent though
5/7
The best tactical risk-reward trades here remain to buy long-end bonds (outright, or better against short-end bonds) on sell-offs and fade outsized ''the economy is booming and long-end nominal yields to the roof'' proxy trades.
See here
6/7
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