The market is signalling a big growth scare.

Should you be worried or fade it?

Thread

1/ First - how can we quantify the ''growth scare'' driver behind the current market dynamics?

A) Yields down
B) Equity sector rotation
C) Stock markets down despite yields down

Effectively, you can summarize this with the following...

2/

Fed officials are discussing ending Quantitative Tightening (QT) soon.

Let's discuss what this means for liquidity and markets.

Thread.

1/ First of all, some basics.

The Fed has been running QT for years now, in an attempt to reduce their balance sheet and drain reserves (''liquidity'') out of the system.

In short, here are the mechanics behind QT...

2/

A deep understanding of the mechanics behind fiscal and monetary operations will be an important skill to navigate markets.

Here is a quick guide to help you master the topic.

Thread. The table below can be used as a Cheat Sheet to quickly assess what impact a certain monetary/fiscal mix can have on markets and the economy.

Let's go through 2 quick examples:

Global bond markets are adjusting to Trump policies, the new Fed stance, and diverging economic fundamentals.

Let's look into it in today's thread.

1/ Starting from the US, this is what markets are implying for Fed Funds over the next 2 years.

Fed Funds are seen around 4% by December (~1.4 cuts), and the terminal rate sits around 3.95% with no more cuts in 2026-2027.

2/

Gold prices could soon hit new all-time highs (again).

Here is why you should pay attention.

1/ Gold is an important asset that Central Banks around the world own in their foreign exchange reserves (FX reserves) portfolio.

Here is how the process works:

2/

The bond market is on fire.

Let's have a look at it.

Thread.

1/ The yield curve has been bear-steepening again.

Since early December, yields are up across the curve but the long-end has been selling off even harder than the short-end:

2/

Something big is happening in China.

For the first time ever, 2-year government bond yields in China seem headed below 1%.

Thread.

1/ For reference, Chinese yields are already lower than during the peak of the Great Financial Crisis and the pandemic meltdown.

Something huge is happening in China - and we should pay attention.

2/

Something big is happening in bond markets.

Thread.

1/ In most cases, 30-year bond yields declined by 10-50 bps in the 2-3 months following the first Fed cut.

Today, 30-year bond yields have increased (!) by +40 bps since the jumbo September Fed cut.

2/

China just announced they are looking into devaluing their currency in 2025.

But I don't think that will work to revive the Chinese economy.

Here is why.

1/ China is grappling under the pressure of a de-leveraging housing market, a weak stock market and now the threat of Trump's tariffs.

Their latest effort to fight economic weakness could be a Yuan devaluation:

2/

Trump just issued a huge warning to BRICS countries.

Thread.

1/ Trump just came out with a very strong statement.

''Do not even think about creating your own BRICS currency, or the US will slam 100% tariffs on you.''

2/

This is Scott Bessent, the new US Treasury Secretary.

Here is all you need to know about him.

1/ Trump revelaed his pick for Treasury Secretary: it's Scott Bessent.

Bessent leads the macro-focused hedge fund Key Square, and he has a long-standing reputation as a strong macro manager having worked with Druckenmiller and Soros too.

2/

A Republican sweep is sending bond markets on fire.

Here is what's happening:

1/ Yields are higher across the curve, but long-end yields are leading the charge.

This yield curve movement is known as ''Bear Steepening''.

Bear steepening is consistent with two possible macro scenarios:

2/

Bond Market 101.

Use this simple approach to master the Bond Market.

1/ Nominal bond yields can be thought of as the interaction between:

1️⃣ Growth expectations
2️⃣ Inflation expectations
3️⃣ Term premium

2/

US elections are approaching.

And the bond market is sending important messages.

Thread.

1/ Both candidates foresee persistent fiscal deficits and Trump's policies are seen as more stimulative for growth and inflation.

Bond markets are in fibrillation.

10-year Treasury yields have rapidly increased to 4.25%.

2/

The biggest macro event of the week happens Saturday.

Here is what you need to know about the Chinese ''fiscal'' press conference:

1/ Chinese policymakers are applying a Western-like playbook here.

Lift the stock market at all costs.
And hope that's enough to loosen financial conditions and rescue the Chinese economy.

But there is a problem with that.

2/

This week, Chinese policymakers fired a ''bazooka'' of stimulus measures to revive the economy.

But: is it really a bazooka? Will it be effective?
Let's unpack it together.

1/ The Chinese real estate market is de-leveraging very hard.

Economists estimate Chinese households have suffered $10+ trillion of wealth losses as a result.

There is now a strong urge to stop the bleeding.

2/

The bond market is intimidating: it's full of jargon and practitioners tend to overcomplicate it.

Today, let me share with you my Bond Market 101 approach.

It will help you understand bond markets in <5 minutes.

1/ Here is the key concept.

Nominal bond yields can be thought of as the interaction between:

1️⃣ Growth expectations
2️⃣ Inflation expectations
3️⃣ Term premium

2/

Everybody and their dogs are talking about the Fed.

But once again, the real macro action is going on somewhere else.

The situation in China keeps getting worse.

1/ The Chinese economy keeps imploding from within.
And we should pay attention.

The Property Price Index for Chinese tier-1 cities keeps making new lows, and it’s now approaching levels last seen 8 years ago!

2/

Government and Central Banks will flood markets with fiscal and monetary policy over the next decade.

Mastering monetary plumbing is now a necessary skill to become a better investor.

A quick guide to Monetary Mechanics.
Thread 1/ For decades, authorities have been wary of using strategies like Fiscal Deficits + QE together.

For example, between 2015-2019 Europe has delivered large amounts of QE but governments were called to reduce deficit spending at the same time.

2/

Here are 5 visuals showing the colossal demise of the European economy.

Thread.

1/ Let's start with Germany.

A business model built on cheap energy imports and outsourced manufacturing which isn't working anymore:

2/

Here we are.

After a prolonged inversion, the US yield curve just dis-inverted.

Here is why it matters.

Thread 1/ Many are familiar with the yield curve slope as the predictor of recessions: the track record is almost perfect, and there are good reasons why.

2/