The new admin suggestion they will follow through on 25% MEX & CAN tariffs created a ripple in markets late yesterday.

While the moves were modest, USD rallied, stocks and bonds sold off, and gold rose, giving some market-based direction on possible tariff impacts.

Thread. There was swift market impact from the suggestion that the President would follow through on his day 1 rhetoric of Feb 1 tariffs of 25% on CAN and MEX.

The USD rallied vs. CAD by more than a penny initially on the news and then recovered some of that afterward.

The ECB has abandoned their inflation-only focus in favor of policy shifts pro-actively supporting growth, particularly for depressed Germany.

A big shift in their decision making framework, reinforced by their continued cuts given conditions.

Thread. Europe has a sticky inflation problem with low commodity prices helping drag down headline and masking the persistence of the much larger services sector. Headline remains above their mandate and core even higher.

Achieving expected mid-double digit earnings growth with ~5% topline requires rapid margin expansion.

Despite all the rhetoric of how AI is boosting productivity and margins, companies just aren't seeing it. Topline is muted and margins aren't surging.

Thread. One of the biggest indications of euphoric growth expectations are analysts penciling out a boom in earnings over the next year - rising to near 17% y/y by YE '25.

DeepSeek news hitting the kindling of euphoric expectations and driving a sharp reversal overnight.

Here is how its spreading across global markets. Thread. While the DeepSeek news was known at the end of last week, many investors took time over the weekend to digest the news.

The result has been a plunge in US markets from the opening, that looks to be accelerating as US investors kick off their day. S&P500 down 2.4%.

Significantly reducing regulatory burdens is the one of the most practical and impactful way the new admin can achieve its goals of both sparking disinflationary growth and reducing the deficit.

Thread. These regulatory burdens keep piling up, bringing significant cost to the US economy. A cost that has been building for decades and surged under the Biden admin.

New regulations over the last 20 yrs has added a cumulative 3tln in total costs (in todays dollars).

The BoJ is expected to hike 25bps to 0.5% tonight, sparking many "highest since '08" headlines and doomer takes implying a similar future.

But the move is marginal, macro data doesn't support sustained hikes, and JPN short rates don't matter a lick to global conditions.

Thread Over the last year the BoJ has gradually hiked from -10bps to 25bps, and is expected to hike again tonight to 50bps, adding up to a pretty marginal 60bps hiking so far.

While future expectations of hikes have risen in recent weeks, at 70bps pricing is 2 more hikes over 2 years.

Gold has had a pretty darn good start to the year.

Up roughly 4% in USD terms and reaching new highs across many global currencies. With this sort of momentum reinforcing foreign central bank & investor demand, '25 is shaping up to be another strong year.

Thread. Most folks in the US context look at gold in USDs, but given gold is a global asset when thinking about demand it is important view it in global currency terms (which is how the total pool of buyers see the assets).

In USD its up and just off new highs despite USD strength.

Global commodity prices have surged in recent weeks.

The positive inflation impulse ahead comes just as most central banks are trying to deliver policy easing, setting up for much more difficult choices in '25.

Thread. Since the Fed's "over easy" a balanced mix of global commodity prices has risen more than 10pct.

US inflation is stuck above the Fed's mandate, despite all the rhetoric and hope otherwise.

And a look across a broad set of inflation data suggests not much progress is being made in recent months and if anything signs of some upward pressures.

Thread. Today's core CPI numbers are expected to come in around 3.3% y/y, suggesting inflation is stabilizing above the Fed's mandate and stabilizing 1-1.5% above pre-covid levels.

The rise in inflation expectations has drawn attention, but it looks to be driven by partisan views, not economic reality.

Corporate based expectations remain stable, and break-evens priced in the bond markets remains in the range of the last couple years.

Thread. While reported inflation figures matter for at least getting a sense of inflation pressures, for policy makers the much bigger deal is whether there is a rise in inflation *expectations* ahead.

Last week we saw a notable rise in consumer expectations in the short-term:

Stock market exuberance hit a fervor right at a time when the economy got 100bps market-based hike.

It is going to take more than the modest adjustment to prices we've seen so far to shake out the extreme sentiment in place to kick off '25.

Thread. Stock market sentiment has reached pretty extreme levels across a range of measures.

Marketvane bullish consensus was near all time highs.

The global rise in bond yields is a significant market-based tightening at a time when most see further easing needed instead.

Equities have so far looked immune to these rate rises, suggesting markets have yet to reflect the impacts of this acute rate rise.

Thread. The rise in bond yields has been broad based across the developed world, kicking off with the Fed's shift to "over easy" in September. US yields are up 100bps:

US markets have an expectations problem.

Over the past two years the US outperformed low expectations. But now strength is consensus across markets. That's teeing the risk that '25 is a year of disappointment ahead, even without a recession.

Thread. The most reliable indicator of asset returns is how growth comes in relative to expectations. In the last couple years, US GDP growth wildly outperformed consensus expectations coming into the year, lifting stocks and dragging on bonds.

But '25 expectations have risen a lot.

Given the nature of this platform, it is hard to know folks track record, even recently. A look back at my '24 major calls.

Stronger for Longer and Over Easy were both non-consensus & spot on. Fading stocks & bonds over the summer less so. Together a pretty good year.

Thread. Coming into '24 market pricing was calling for economic slowing and rapid rate cuts. My "stronger for longer" view was non-consensus and proved out.

https://x.com/BobEUnlimited/status/1811715925168537644

Today highlights the problem with opaque, discretionary Fed monetary policy decisions.

Markets forcefully repriced the future expected rate path, not b/c of new macro data, but b/c JP changed his mind about how to run policy vs the last 2 meetings.

Thread. As I noted in my post this morning this way of operating creates unneeded uncertainty, churn, and volatility in markets. Over time that is strictly detrimental to economic productivity by reducing investment and increasing risk premiums.

https://x.com/BobEUnlimited/status/1869374419300163999

The Fed system needs DOGE more than anywhere else in government.

It is the most powerful global economic policy maker, and it is desperately in need of simplification and modernization to restore credibility.

A thread on what's to be done. Focus on Monetary Policy & Execution

The Fed is an amalgamation of responsibilities only loosely connected to each other. Just take it from their own description below. And this doesn't even mention data collection or the hundreds of folks doing academic-style research.

The BoE is facing the same conditions as the ECB but is pursuing a much different policy path.

Both economies face stagnant, but stable growth, low unemployment and inflation that remains too high, but while the ECB cuts aggressively the BoE remains cautious.

Thread. Recent data in the UK shows a continuation of stable, but soft growth of the last couple years. The composite PMIs remain ok, in a recent tight range with some indications of a touch of slowing in the last month.

The ECB is on track to keep cuts coming, but an aggressive easing isn't really aligned with underlying conditions.

With growth hanging in there and even picking up a bit, UE at secular lows, and inflation still elevated, the ECB is another case of "over easy" policy.

Thread. The ECB meets on Thursday with near certainty for a cut and some chance 50bps will come. And with German 2s sitting at roughly 2%, a lot more cuts are expected to follow on top of the cuts so far.

JP's confident claims that inflation is on a trendline down to 2% is an exercise in hope not reality.

A broad look at inflation data beyond PCE/CPI shows not much has changed in the last 2 years despite the Fed's hopes otherwise.

Thread. While measured numbers get a lot of the attention, we can look at a broad set of other data to triangulate what is happening with inflation in the US.

Let's start with biz surveys which show little relief in price pressures. Services prices have been flat for nearly 2 years:

US small biz optimism is surging, in line with partisan surges elsewhere.

More importantly, measures of actual activity are also showing some improvement in recent months, particularly in employment figures, suggesting worries about an acute downturn are unfounded.

Thread. You can think about the NFIB as having 2 components - questions about what is actually going on (in the last 3m or planned in the next 3m) and another set about the longer future outlook. Both have improved, but the future expectations side has surged following the election.

The Chinese Politburo readout reaffirmed the desire to support the economy, but gave limited concrete policy.

"More proactive" fiscal policy will only drive economic improvement if spending actually comes with it. There are no signs rhetoric is translating to reality.

Thread. Regular readers know that the promised "big bang" out of China has yet to materialize after many years of hope from Western investors. And while the rhetoric has changed over the last year, the concrete policy moves haven't been close to what is needed.

https://x.com/BobEUnlimited/status/1854878525251010859