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Fed Minutes suggest pausing QT “until” resolution of the debt ceiling
This would amplify market volatility, not reduce it
Either the Minutes are poorly drafted, or else reflect deeper misunderstandings of how balance sheet policy affects markets
US economic exceptionalism remains alive and well
But in markets, many Trump trades have been faltering
Markets’ overall behaviour remains Panglossian thanks to a combination of falling real yields, a temporary boost from CB liquidity, and animal spirits
But we see reasons to doubt the longevity of all three
Free excerpt from 22 Jan webinar
The US economy is indeed exceptional
But the performance of its markets owes just as much to an extraordinary funnelling of fund flows
Dissecting the drivers of these flows sheds crucial light on the durability or otherwise of the risk rally
Free to view by all; full replay available only to clients with Group Webinar or One-on-One subscriptions
Full replay of 22 Jan webinar
The US economy is indeed exceptional
But the performance of its markets owes just as much to an extraordinary funnelling of fund flows
Dissecting the drivers of these flows sheds crucial light on the durability or otherwise of the risk rally
Open to clients with Group Webinar or One-on-One subscriptions; Read-only clients have access to first section only
Where consensus sees US exceptionalism
We see a funnelling of fund flows
Here’s how to trade it
A chart of publication titles against price action
It is tempting to look at the performance of US equities in 2H24 and conclude that central bank liquidity no longer matters for markets
But a closer examination of both other markets and shorter timescales suggests this would be a mistake
It instead highlights the predominant role currently being played by fund flows and US exceptionalism
While it is possible to paint scenarios where liquidity contributes to a melt-up in risk in early 2025, on balance we see it as one of a number of reasons to be skeptical of the bullish consensus
Many fundamental indicators show a sudden deterioration
In combination with markets’ Panglossian interpretation of prospects under Trump, these represent reasons to take profit
Too much of markets’ performance comes from a fiscally-driven surge in fund flows
