Thread by @MacroAlf

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

https://twitter.com/MacroAlf/status/1480626722462740483?s=20

6/7

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