Thread by @Globalflows

The macro regime has made a short-term shift from bear steepening to bull steepening in 10s30s

This has implications for risk assets, gold, and FX, especially since volatility is so low right now

Let's dig in🧵👇

Let me first start with, if you don't have a correct understanding of WHY the yield curve is flattening or steepening, you will never know WHERE we are likely to move.

This is why I wrote a comprehensive primer on understanding interest rates here:

https://x.com/Globalflows/status/1792913231780196815

We were in a bear steepening regime earlier this year which was functionally indicating a significant rise in long term nominal GDP expectations AND a repricing of the forward curve. Over the last 2 weeks, we have seen bull steepening which is more cuts getting priced on the short end and long term rates falling in expectation of lower nominal GDP.

During this time equities have rallied and capital has moved out the risk curve.

Low quality sectors continue to rally as the curve is bull steepening because the curve is bull steeping into resilient growth. The labor market is not falling apart of else we would see the highest risk sectors falling as traders expect less growth in those companies

As I have laid out in the threads for the last 2 months, we are unlikely to get a recession and equities remain skewed to the upside.

https://x.com/Globalflows/status/1934603377717178881

However, when you have rates in the US move down, you have to think about this in relationship to other countries

For example, interest rates on the German curve in the Eurozone have been bear steepening. In other words, rates in the US are moving down as rates in Germany are moving up

This is one of the reasons we are seeing a bit of buying pressure in Gold as EURUSD pushes higher on the day

https://x.com/Globalflows/status/1939756930173681985

I explained why these forces are developing in the macro report here:

https://x.com/Globalflows/status/1939741420237332541

And did a video breakdown here:

https://x.com/Globalflows/status/1939747799689761182

The bottom line is that we are moving through labor market prints this week where JOLTS and NFP prints will begin sending clear confirmation if the forward curve is right or wrong.

When the Fed pauses into rising growth, the result is equities melt up

https://x.com/Globalflows/status/1939413267153358853

This is exactly what we are seeing and the wild thing is that Industrials are leading the way as they push higher and higher

Industrials leading the way into a recession? I don't think so

When we are in these periods of time, investors are constrained and have to buy equities or else they are underexposed and get destroyed by the negative effect of macro liquidity expanding.

See the thread I laid out here on this

https://x.com/Globalflows/status/1934742167567913183

We will continue to have these melt up and melt downs until an actual recession takes place and there is a complete reset of the system. The recession isn't on a tradeable time horizon right now but there will be a moment when the lights begin flashing yellow for assets.

As long as rates are falling and equities are bidding, this creates cheaper capital to move out the risk curve until the Fed realizes they made a massive mistake.

The Fed always reacts after its to late

I will be sending out a free playbook for how I am thinking about navigating this period of time to everyone who is a subscriber and will be doing a spreadsheet breakdown of all the datapoints you want to be watching during this period of time. I will send this out after the close today capitalflowsresearch.com