Rising Pressure in Long-Term Bond Markets

• Recent bond auctions in Japan and the US underperformed significantly, exposing cracks in long-term debt demand.

• Governments are issuing more long-term debt than markets are willing to absorb, driving yields to multi-decade highs in the US, UK, Japan, and Europe.

• Traditional buyers like pension funds and insurers are pulling back, while central banks are offloading pandemic-era bond holdings.

• Market pushback is increasing. The term “bond vigilantes” is resurfacing as investors demand greater fiscal discipline.

• Notable voices (e.g., Jamie Dimon, Larry Fink, Ken Griffin, Elon Musk) are warning about potential cracks in the Treasury market and unsustainable deficits.

• Responses vary: some governments are shifting to short-term debt issuance, while others are reducing long-dated bond offerings or considering buybacks.

• Yield curve steepening reflects persistent inflation expectations and fiscal concerns with implications for sovereign, corporate, and household borrowing costs.

• If you're interested in understanding the dynamics behind rising yields, you can check out one of Rationale's previous memos through the link.

Trump–Musk Clash: Political Risk Enters the Market

• A public fallout between Donald Trump and Elon Musk erupted over a new federal spending bill.

  • Musk: Called the bill a “disgusting abomination” and urged the public to “Kill the Bill,” criticizing the rollback of EV tax credits.

  • Trump: Accused Musk of being self-interested and threatened to pull federal contracts and EV subsidies.

  • Escalation: Musk accused Trump of being “in the Epstein files” (later deleted) and floated launching a new political party.

• Market impact: Tesla stock fell ~14–16%, wiping billions in market cap.

• This episode underscores how high-profile political disputes can create headline risk and spill over into asset prices and investor confidence.

Labor Market Update

• There are no signs of a sudden recession in the headline NFP data. The revision from 277K to 147K for the previous figure seems more important.

• There was a downward revision of 95k in the prior two months’ figures.

• The ADP data continues to suggest a soft landing, not a sharp recession.

• Weekly unemployment claims and recent layoff announcements further support this softening labor market view

• Slower hiring in key sectors, falling participation, and rising unemployment support the idea that the labor market is cooling.

• This gives the Fed more confidence to consider a rate cut in the second half of the year if inflation continues to ease.

Best,
Roy Gulluoglu
Founder, Rationale

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Last Week’s Key Developments

Nonfarm Payroll Report: No Major Shift from Soft Landing Narrative

• Headline payrolls came in at 151K, slightly below expectations but largely in line.

• Wage-based inflation risks did not increase, supporting Powell’s view that the labor market is no longer fueling inflation.

• Broad unemployment (U-6)(includes part-time employers) jumped to 8.0% from 7.5%, the highest since October 2021, indicating some labor market strain.

• The government sector saw a 10K decline, which is expected to deepen in March due to DOGE-related factors.

• Remember that government sector hiring was supporting the labor market a lot. There might be more room to bear such negative numbers.

• Private sector job growth slowed, with the three-month average declining from 204K to 169K, still supporting the soft landing thesis despite the decline as 169K is a strong figure.

Conflicting PMI Data: ISM vs. S&P Global

• S&P Global PMI (includes broader job titles such as CEOs and CFOs) signaled a slowdown in the services sector while manufacturing remained weak.

• ISM Services PMI (based on purchasing and supply executives) did not confirm the services slowdown seen in S&P data.

• Trump-related risks, such as potential tariffs, are impacting sentiment. Companies may have to squeeze profit margins instead of passing costs onto consumers.

Germany’s Expansionary Fiscal Reforms

• A €500 billion infrastructure fund, equivalent to 11.6% of GDP, will be spent over 10 years, with €100 billion allocated to federal states.

• Defense spending will be exempt from debt limits, allowing military expenditure to exceed 1% of GDP, with projections that it could reach 3%.

• Increased bond issuance could push yields higher, which may either support or weaken the euro depending on market perception.

• If fiscal expansion fuels inflation, the ECB may be forced to tighten policy, but excessive debt issuance without strong growth could pressure the euro lower.

ECB Cuts Rates Again but Faces Uncertainty

• The European Central Bank delivered its sixth rate cut since June, but future policy direction remains uncertain.

• Rising defense spending amid the possibility of a reduced US commitment to Ukraine could complicate inflation dynamics.

Fed and Growth Outlook

• The Atlanta Fed’s Q1 GDPNow estimate turned negative, primarily due to a surge in gold imports widening the trade deficit.

  

• Markets still expect three Fed rate cuts this year, but actual cuts will depend on labor market weakness.

  

• According to FactSet earnings expectations are falling. S&P 500 Q1 EPS estimates dropped 3.5%, a sharper-than-average decline, largely due to tariff and inflation concerns.

Japan Declares End to Deflation

• All four key indicators—output gap, CPI, GDP deflator, and unit labor costs—turned positive.

• The output gap flipped in Q4 2024, reinforcing expectations for a Bank of Japan rate hike.

  

This Week’s Market Themes

Recession Fears Are Rising

• Wall Street is increasingly concerned that Trump’s economic policies could derail the soft landing.

• Monday’s selloff was the worst for the S&P 500 this year, led by tech. The VIX spiked to 28, reflecting increased risk aversion.

JOLTS Data Higher Than Expected but Had Limited Market Impact

Trump’s Tariff Moves and Market Reaction

• A 50% tariff was announced on all steel and aluminum from Canada.

• The US dollar weakened against most major currencies but gained against the Canadian dollar.

• The euro strengthened, supported by German fiscal stimulus expectations.

Inflation Report Will Play a Crucial Role

• According to FactSet the median estimate for the year-over-year consumer price index (CPI) for February 2025 is 2.9%.

• If the actual CPI matches expectations, it would mark a decrease from January’s 3.0% and fall below the trailing 12-month average of 3.0%.

• Inflation has exceeded estimates in four of the last 12 months, suggesting some risk of an upside surprise.

• A weaker-than-expected CPI print would strengthen Fed rate cut expectations, while an upside surprise could delay policy easing.

This week’s price action will largely depend on how inflation data evolves, the Fed’s policy outlook, and ongoing tariff uncertainty.

Best,
Roy Gulluoglu
Founder, Rationale

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Overview

As of midnight, 25% tariffs on Canadian and Mexican imports and an additional 10% tariff on Chinese goods took effect, targeting 60% of U.S. imports. Combined with shifting market narratives, this has triggered volatility in equities, crypto, and broader sentiment. Here’s the breakdown:

Key Developments

1. Last Week’s Shift: Inflation to Growth Risks

   • Retail Data Shift: New figures from companies like Walmart and PMI numbers revealed a slowdown in consumer spending, flipping the market’s focus from `tariff-driven inflation` to potential `demand-side risks`. Tariffs are no longer just a price story, they’re forcing U.S. importers and foreign producers too.

   • Rate Cut Surge: This pivot boosted expectations for Fed intervention, with the probability of a June rate cut nearing 100%. Investors now see tariffs as a potential drag on corporate profit margins, giving the Fed more room to act.

   • Tech Boost: Nvidia’s firm earnings report added fuel to the rally, reassuring markets that growth pockets remain strong despite broader pressures. The combo of rate cut bets and solid tech performance drove equities higher last week.

2. This Week: Uncertainty Returns

   • Crypto Volatility: The week kicked off with a sharp crypto rally, followed by an aggressive sell-off. This rollercoaster spooked broader markets, amplifying risk-off momentum across asset classes.

   • Market Reaction: The S&P 500 and crypto have pulled back as uncertainty grows. Investors are torn between tariff-related growth risks and the hope that Fed rate cuts will offset the damage.

Market Drivers to Watch

• Rate Cut Hopes: A dovish Fed could cushion the blow, especially if growth concerns intensify. The interplay between tariff pain and Fed relief is the core tension right now.

• Uncertainty: Markets hate ambiguity. With the administration teasing a “big announcement” Tuesday, the lack of specifics is keeping risk-off sentiment alive

Market Scenarios

• Bearish Case: Tariffs hit demand and profit margins harder than expected, growth fears dominate, and volatility persists. Equities and crypto could see further downside.

• Bullish Case: Rate cut expectations hold firm, we can see a rebound as markets refocus on Fed support. It all depends on the focus of market participants. Let’s see if the growth or inflation concerns will outweigh.

• Base Case: Uncertainty keeps markets choppy near term. Hard data like NFP will break the deadlock. Either toward stability or deeper turbulence.

• Nonfarm Payrolls (NFP): Friday’s jobs data will be pivotal. Weak numbers could lock in early rate cuts, supporting equities. A strong report might ease growth fears but reduce Fed urgency, potentially reigniting volatility.

Best,
Roy Güllüoğlu
Founder, Rationale

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Market & Economic Update

FOMC Minutes

The Fed might consider pausing its balance sheet runoff to keep liquidity flowing in the financial system. This comes amid expected uncertainty, especially with debt ceiling negotiations on the horizon. For more details, check the Fed’s official statement.

PMI Data

The latest PMI figures show a split: services are slowing while manufacturing is picking up. The services sector is feeling the pressure from Trump-related risks, particularly tariff concerns, which could squeeze corporate margins. Meanwhile, manufacturing is benefiting from businesses pulling forward trade activity ahead of potential tariff hikes.

Market Sentiment Shift

The market is currently caught between two competing narratives on tariffs and their broader impact:

1. Tariff-Driven Inflation: The initial concern was that tariffs would push prices higher, fueling inflation and forcing the Fed to keep rates elevated for longer. In this scenario, we typically see:

   • Higher U.S. yields as markets price in a more hawkish Fed stance.

   • Stronger USD, driven by yield differentials.

   • Equities holding up or even rising, as recession risks remain in the background.

   • Emerging market currencies weakening, as higher U.S. rates pressure capital flows.

2. Tariff-Driven Economic Slowdown: Recently, the focus has started shifting to how tariffs could hurt corporate profit margins, leading to weaker economic activity. If this narrative takes hold, we can expect:

   • Lower USD, as recession concerns replace inflation fears.

   • Equities selling off as a first reaction, reflecting increased downside risks to growth.

   • Potentially faster Fed rate cuts, as policymakers react to economic deterioration.

Right now, the market is swinging between these two perspectives, reacting to new data and policy signals. Recent moves in bond yields suggest that concerns over economic activity are starting to gain traction.

Investment Outlook & Strategy

With this backdrop, I see current market weakness as a buying opportunity, particularly with a constructive outlook heading into late 2025. My approach for this year includes:

• Two-Portfolios Strategy: A short-term, actively managed portfolio alongside a stable, long-term allocation.

• Leaning Into Stability: Given expected volatility, I’m prioritizing o weighining the long-term portfolio to manage risks. Positioning in precious metals and equities with targeting the end of 2025 still makes sense to me as long as the base scenario is rate cuts.

Key Areas to Watch

The balance between rate expectations and recession risks remains a key driver, with the latter taking center stage. I’m keeping a close eye on the labor market—employment and consumer spending will be critical for economic resilience.

Next Steps

I’ll be monitoring developments around the debt ceiling, tariff policies, and labor market data to adjust the strategy accordingly.

Also, aside from today’s topic, I’ve been getting questions about whether I consider company fundamentals or strictly focus on charts when I give a trade idea. I’ve shared my thoughts in the video below:

Best,
Roy Güllüoğlu
Founder, Rationale

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Dear Rationale Members,

I’m excited to share a video where I break down the core mission and structure of Rationale. Whether you're an experienced trader or just getting started, Rationale is designed to simplify market analysis and provide structured trade ideas based on technical patterns and macroeconomic insights.

Rather than offering direct buy/sell signals, Rationale focuses on identifying high-probability trade setups across equities, FX, futures, ETFs, and crypto.

The service includes detailed reports on trade opportunities, ongoing trade alerts, and a watchlist for setups in progress. Every trade idea is transparently tracked through performance metrics, ensuring a structured approach to trading with proper risk-reward strategies.

Check out the video to learn more about how Rationale works and how it can enhance your trading process.

Best,
Roy Güllüoğlu
Founder, Rationale

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Dear Rationale Members,

I’d like to talk about Howard Marks’ latest memo, On Bubble Watch, which explores the idea of market bubbles—a topic that’s especially relevant today given the extreme concentration in major stocks and the excitement around AI-driven investments. Since this is such a hot topic, I wanted to summarize and share the key points with you.

For those who may not be familiar, Howard Marks is one of the most respected investors in the financial world, known for his deep insights into market cycles, risk management, and investor psychology. He is the co-founder of Oaktree Capital Management, a leading investment firm specializing in distressed debt and value investing. His memos are widely followed by top investors, including Warren Buffett, who has praised them as essential reading.

In this memo, Marks revisits past bubbles and examines whether today’s market conditions reflect similar patterns. Below are his key insights.

Key Takeaways:

1. What Defines a Bubble?

   1. Irrational exuberance: Extreme enthusiasm for certain stocks, often fueled by hype rather than fundamentals.

   2. Adoration of certain companies: A belief that they are invincible and will only continue to grow.

   3. Fear of missing out (FOMO): Investors buy in simply because they fear being left behind.

   4. "No price is too high" mentality: When investors stop questioning valuations and assume prices will rise indefinitely.

2. Historical Comparisons:

   Marks draws lessons from past bubbles, showing how investor psychology repeats itself:

   1. The Nifty Fifty (1960s-70s): A group of elite companies was believed to be unstoppable, but many lost over 90% of their value in the 1973-74 crash.

   2. The Dot-Com Bubble (1999-2000): Internet stocks soared despite weak fundamentals, only to collapse when reality set in.

   3. The Housing Bubble (2008): Overconfidence in real estate and risky financial products led to a devastating market collapse.

The key takeaway? Investors tend to overestimate the potential of "new" trends, assuming the rules have changed—until they haven’t.

3. The Market Today:

   Today’s stock market is increasingly dominated by the "Magnificent Seven" (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla), which:

   1. Now make up over 30% of the S&P 500, doubling their share from five years ago.

   2. Have reached a level of concentration not seen since the 2000 tech bubble.

   3. Are driving a disproportionate share of market gains, raising concerns about sustainability.

4. Valuation Risks:

   While Marks acknowledges that today’s top companies are more profitable and innovative than past bubble stocks, he warns that high valuations create risk:

   1. AI-driven stocks, particularly Nvidia, are priced for extreme growth, assuming decades of dominance.

   2. Investors assume today’s winners will remain leaders forever, despite history showing that market leadership frequently changes.

   3. Passive investing (index funds) may be inflating prices artificially, as capital flows into top stocks simply due to their index weighting, rather than their fundamentals.

5. Final Thought:

   Marks does not claim that we are in a bubble, but he sees warning signs that investors should not ignore. The market may not yet exhibit the euphoria of past bubbles, but the combination of high valuations, extreme concentration, and investor complacency could lead to future corrections. He advises staying vigilant and avoiding the dangerous mindset that “this time is different.”

Warm regards,

Roy

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Dear Rationale Members,

As we conclude 2024, I want to take this opportunity to reflect on the year’s achievements and share an overview of the journey we’ve undertaken together. This year has been remarkable, filled with dynamic market movements, and your engagement with the Rationale newsletter has been integral to its success. Let’s dive into the key highlights:

Performance Summary

You can visit Rationale Performance page to explore detailed explanations of the performance metrics for the trade ideas shared through the Rationale research service.

Find answers to questions such as: What defines a winning trade? What constitutes a losing trade? What are ongoing trade ideas? How should the win rate be evaluated? And more.

Macro Trend Trade Ideas

Several significant market trends were captured this year, offering members valuable opportunities:

• Gold Long: Gold’s strong rally was identified early and turned out to be a great opportunity.

  

• Crypto Long: The rebound in cryptocurrencies was another highlight, with the broader market offering solid gains. The reversal from the bottom was spotted in Bitcoin and a lot of other cryptocurrencies.

  

• US Equities: Many US stocks delivered solid results, guided by classical chart patterns.

  

You can visit Rationale Watchlist page to see the details of given trade ideas.

Key Lessons from 2024

1. Adapting to Market Volatility:
This year underscored the importance of flexibility in the face of evolving market conditions. Whether it was navigating geopolitical uncertainties or responding to shifts in monetary policy, our strategies emphasized agility and preparedness.

2. Risk Management as a Cornerstone:
Maintaining a disciplined approach to risk management was critical. By sticking to predefined stop-loss levels and focusing on high-probability setups, we ensured consistent portfolio protection.

3. Leveraging Technical Analysis:
Our reliance on classical chart patterns and technical formations provided a reliable framework for decision-making across multiple asset classes.

Looking Ahead to 2025

The insights and lessons gained from 2024 will continue to guide the approach moving forward. Plans for 2025 include:

• You can check out the final Market Update video of 2024, where I discussed strategies for structuring a portfolio ahead of 2025.

• Improving the watchlist to make it easier for you to track trade ideas by increasing the frequency of Trade Alerts reports.

  

• Sharing clear and actionable ideas to help you navigate the markets by sharing more short videos including game plans showing my approach.

Thank You for Being a Part of Rationale

Your support has been incredibly important this year. If you have any feedback or suggestions, I’d love to hear them as I work to make 2025 even better.

Wishing you a Happy New Year filled with success, growth, and new opportunities!

Warm regards,

Roy Gulluoglu

Founder, Rationale Newsletter

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Dear Rationale Members,

In the ever-changing landscape of the financial markets, it’s easy to get swept up in common narratives—one of which is that rising yields inevitably spell trouble for stocks. But as always, our goal is to look deeper and understand the nuances shaping these relationships. Here’s a closer examination of the factors impacting yields, providing insight beyond the headlines.

Key Factors Driving Yields

1. Growth Expectations

   1. Structural Growth: Long-term economic growth is driven by factors like labor force expansion (positive demographics) and productivity improvements. These support stronger structural growth, leading to higher long-dated bond yields. For example, recent enthusiasm around AI has fueled expectations of significant productivity gains, supporting a narrative of higher structural growth.

   2. Cyclical Growth: Short-term growth cycles are influenced by the credit cycle, fiscal policies, earnings, and labor market trends. As an example, in healthy economic cycles, short-term yields can increase, often influenced by central bank tightening to curb overheating and inflation. Another example, monetary policy adjustments directly affect yield levels and EPS expectations. investor caution.

2. Inflation Expectations

   1. When inflation expectations rise, investors seek higher yields to protect their purchasing power against potential future inflation. As a result, they tend to sell current bonds and wait for new issuances with higher yields that better offset inflation risks. This shift drives down bond prices, which in turn pushes yields higher.

3. Term Premium

   1. The term premium represents the compensation investors demand for holding long-term bonds over rolling short-term instruments, like 3-month T-bills. Higher uncertainty, such as that surrounding the upcoming U.S. election, generally raises the term premium, which in turn can drive up long-dated yields.

Higher Yields Aren't Always Negative for Stocks

With these factors in mind, remember that higher yields don’t always spell trouble for stocks. Instead, understanding why yields are rising can help us interpret their broader implications. The relationship between the SPX and US 10-year yields varies across each period in the chart, with each period driven by distinct underlying factors. For instance, despite the current election uncertainty pushing yields higher, the stock market remains supported by a strong earnings season and a positive inflation trend (despite the latest CPI data). This aligns with a “soft landing” scenario, which remains the base case for the current market outlook.

As we continue to monitor these developments, let’s keep our eyes on the bigger picture. Rising yields, in the right context, can reflect underlying economic strength, which isn’t inherently negative for equities.

Let’s keep questioning the narratives, exploring the factors at play, and keeping a steady course as we navigate this landscape together.

Warm regards,

Roy

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Retail Sales Data

Retail sales exceeded expectations, particularly in the online market. This could limit any potential downward revisions to the NFP numbers, which would be positive for the economy. While a November rate cut still seems likely, the December decision remains uncertain, with projections expected. The upcoming NFP release will play a crucial role on especially December rate decision and projections.

Interest Rates and Market Sentiment

Strong retail sales have sustained high rates, a critical trend to watch. Additionally, geopolitical risks, upcoming election uncertainty, and recent inflation concerns (highlighted by the latest CPI data) could pause the downward trend in yields. Key upcoming dates include the U.S. election on November 5th and the Fed meetings on November 6th and 7th.

I'm using the TLT chart to track long-term bond yields. It's currently at a crucial technical level—if the trendline acts as a support, we could see a continued decline in yields. Remember that long-term yields go up when the attached TLT chart goes down.

Equity Market Strength Despite High Yields

Despite high yields, equities continued to rise last week. This could be attributed to three main factors:

a) Strong earnings expectations as we received some from banks. Banks collectively provided strong guidance on their outlooks, which drove the KWB Bank Index higher.

b) Markets potentially pricing in a Trump victory, which institutional investors see as positive for stocks and negative for bonds, in contrast to a Kamala Harris victory.

c) Additionally, a third reason for broad market strength could be the equity rally expanding beyond the Magnificent Seven to include the broader S&P 500, as well as mid-cap and small-cap stocks.

S&P 500 Forecast and Long-Term Outlook by Goldman Sachs

I came across an analysis in John Authers’ daily newsletter, which provides further insight into the current market dynamics. Goldman Sachs’ chief US equity strategist, David Kostin, raised his year-end S&P 500 forecast to 6,000, with a 12-month target of 6,300, suggesting a potential 11% gain over the next year. However, he also warned that long-term growth may be much slower.

In a follow-up report, Kostin estimates that the S&P 500 will gain only 3% per year in nominal terms (1% in real terms) over the next decade, which would be one of the weakest performances on record.

Short-term optimism is driven by the recent 10% rally in the S&P 500, largely based on growing market belief in Donald Trump’s potential return to the White House and a relatively strong earnings season. Earnings forecasts have been manageable, and Goldman expects profit margins to continue expanding. Additionally, Goldman has a slightly more positive view of the economy compared to the broader market consensus. In short, they are optimistic only for a short term.

For the long term, valuation is key. The CAPE (Cyclically Adjusted Price-to-Earnings) ratio, which compares current stock prices to inflation-adjusted earnings from the past 10 years, shows that the S&P is currently more expensive than it was before the Great Crash of 1929 and not far from levels seen during the dot-com bubble of 2000.

Historically, when the CAPE peaked, it often led to a significant decline over several years, but this time the CAPE peaked in 2021 and bounced back by late 2022—coinciding with the launch of ChatGPT. The ongoing AI boom seems to be playing a major role in keeping the market elevated despite historical trends suggesting a potential downturn.

To wrap-up…

I don't view Goldman’s warning as a bear market signal, but it aligns with my belief that there may be limited upside left for U.S. equities and stocks in general. As John Authers explained, the concern is about valuation, which is a long-term issue. However, it’s essential to remain cautious and avoid falling into the trap of FOMO. Stick to the rules you've set and carefully analyze the charts for signs of a potential downturn. As we all know, the biggest challenge is filtering out the noise and maintaining discipline in our approach. In conclusion, staying focused on your strategy and avoiding emotional decisions is key to navigating these uncertain times.

Wishing you all a productive and successful week ahead!

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

Hello, rationale community! Here is the latest edition of the `MARKET UPDATE` report where I evaluate recent financial developments.

Today I will briefly go over the economic calendar. Then I will talk about the FED and its potential implications on the markets. I will also get into the details of ISM and Nonfarm data that we received last week.

ECONOMIC CALENDAR

TUESDAY(04/30/2024)

US Employment Cost Index QoQ Q1: Actual:1.2%, Forecast:1.0%, Previous:0.9%

US CB Consumer Confidence APR: Actual:97, Forecast:104, Previous:103.1

WEDNESDAY(05/01/2024)

US ISM Manufacturing PMI APR: Actual:49.2, Forecast:50, Previous:50.3

US ISM Manufacturing Prices APR: Actual:60.9, Forecast:55.5, Previous:55.8

US JOLTS Job Openings MAR: Actual:8.48M, Forecast:8.68M, Previous:8.81M

US Fed Interest Rate Decision: Actual:5.5%, Forecast:5.5%, Previous:5.5%

FRIDAY(05/03/2024)

US Average Hourly Earnings MoM APR: Actual:0.2%, Forecast:0.3%, Previous:0.3%

US Nonfarm Payroll APR: Actual:175K, Forecast:238K, Previous:315K

US Unemployment Rate APR: Actual:3.9%, Forecast:3.8%, Previous:3.8%

US ISM Service PMI APR: Actual:49.4, Forecast:52, Previous:51.4

US ISM Services Prices APR: Actual:59.2, Forecast:55, Previous:53.4

FED - Quantitative Tightening

• Summing up Treasuries and other bonds, the Fed was allowing $95 billion of bonds (60bn USTs + 35bn MBS) to roll over its balance sheet each month.

• They decided to reduce the monthly QT cap to $25 billion, rather than $30 billion(market expectation) in Treasury Securities(USTs) starting in June is perceived as dovish by the market as it indicates FED`s desire to hold a larger portion of long term bonds. This would put pressure on the long-term yields, which moved recently higher with the signals of persistent inflation and robust labor market data. Here below, you see a great chart from Althea Spinozzi, the Head of Fixed Income Strategy at Saxo Bank.

  

• With the previous cap, the Fed would have retained only $53 billion in coupon-bearing US Treasuries within a year. However, the new cap allows the Fed to retain approximately $300 billion in such Treasuries, about 25% more than with the $30 billion cap.

• The reduction in QT is expected to put also pressure on the long end of the yield curve but the US Treasury is set to sell the highest volume of notes and bonds since 2022 this quarter, which interestingly coincides with the pre-election period.

• What does this imply? Let`s go through another chart from Althea Spinozza, As you can see the QT reduction starts in June, just around that time the highest US bond issuance since 2022. Seems like the additional 5$ billion is also there to absorb the additional debt issuance :)

  

• Since debt monetization potentially creates inflation, we might see the investors ask for a higher inflation premium. This would push the long end of the yield curve higher.

• So overall, the reduction of QT might put pressure on the long end of the yield curve and lower the long-term yields in the short term but, with the increasing debt issuance-increase in the supply, we might see it to contribute to inflation which leads to higher long term yields in the longer term.

FED - Powell

• Powell remarked that this year's data haven't instilled much confidence, particularly due to higher-than-expected inflation readings, suggesting that it may take longer than previously anticipated to gain substantial confidence.

• He acknowledged the restrictive nature of current policies and noted a slowdown in sectors sensitive to interest rates. He highlighted labor market improvements nearing pre-pandemic levels, citing data series, such as the JOLTS report, indicating weaker demand for labor compared to pre-pandemic levels.

• Notably, there are now 1.3 job openings per unemployed person, the lowest since 2021, potentially leading to a slowdown in consumer spending and subsequent decreases in both inflation and economic growth in 2024.

• Powell's rejection of rate increases, alongside the dismissal of immediate rate cuts, implies a commitment to a "high for longer" approach, driven by sustained inflation and a robust job market. The timing of the first rate cut remains unclear.

• Let`s see what the market priced before and after the FED:

• After the FED meeting, the probability of the second rate hike until the end of 2024 increased to 80%.

Nonfarm Payroll and Average Hourly Earnings

• The market expectation was 240K but the nonfarm payroll came to 175K from the prior data of 303K.

• The two-month revision is negative 22K. This downward revision trend aligns with a contracting economic environment.

• Within the service segment, the leisure and hospitality part increased by only 5K which is low compared to the prior data. The temporary help services are negative 16K. If the economy is doing well or in a high-demand environment, you would need much more third-party help.

• Also, you can see the downtrend in the 3-month average number at the bottom of the table.

• Average hourly earnings YoY data decreased to 3.9% from 4.1%. The expectation was 4%—the lowest increase since June 2021 and the MoM increase came to 0.2% from 0.3%- the expectation was 0.3%. This is a positive sign regarding price-wage spiral risk.

ISM Services PMI

• The forecast for the service PMI number was 52. The lower-than-expected 49.4 mark has been the second data in the contractionary region since December 2022(49).

• I am giving more importance to the service side since it is the problematic part of the inflation. I am trying to trace any distortion on that side to confirm progress in the inflation.

• The ISM service prices increased to 59.2 from 55.4, the forecast was 55. It is not a good sign in terms of inflation.

• However, ISM service employment and ISM new orders surveys are signaling a contraction in the economy which is a good sign in terms of the impact of tightening the monetary policy but a bad sign for the economy.

OVERALL,

1. lower-than-expected nonfarm data

2. lower wage-based inflation risk

3. ISM data in the contraction region

Considering these factors, market anticipation has risen regarding the likelihood of earlier rate cuts and the number of rate cuts. From now on we need to find out if the soft landing scenario will start to gain its power back.

Accordingly, I still believe that positioning in precious metals and quality stocks should be the base scenario in market corrections. The risky side especially for the US equities is the `soft landing` part. The continuation of disinflation should be achieved without distorting the growth of the economy, thus the companies sustain their profitability. So the level of aggressiveness on US equities should be calibrated cautiously.

Considering the p/e differentials, the European or developing market equities offer more room compared to their US counterparties.

So summing up,

• The uncertainty,

• Potential geopolitical tensions,

• An upcoming rate cut expectations that could potentially elevate with the continuation of the disinflation,

make the precious metal attractive to me. I would see any correction as a buying opportunity.

From a technical standpoint, both the weekly charts for gold and silver have broken out from extended bases and retraced back to the breakout points. In the case of silver, the former resistance has now become a tested support level, allowing prices to continue their upward trajectory. Meanwhile, the long-term moving averages, specifically the 10-week and 40-week ones, are supporting the upward momentum in gold. Given the current macroeconomic landscape, any corrections observed in precious metals could potentially be viewed as favorable opportunities for investment with stop loss below the old resistance levels.

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• CPI numbers:

  

  • The year-on-year and month-on-month headline inflation exceeded the initial forecasts, but there are positive indications of a slowdown in core inflation. The primary contributing factor to this trend is a 7% year-on-year increase in the shelter segment. If we exclude the shelter component, the index levels off at 2%, aligning with the Federal Reserve's target.

  • There are four popular measures of inflation which are also closely monitored by the FED,

1. Core Inflation: Excludes food and energy. MoM data is crucial. It increased by only 0.3% as expected. A positive sign of easing inflation.

2. Super Core inflation: Core Service inflation - Shelter >Heavily led by wage inflation, as labor is a large share of costs for such businesses. It increased by 0.6% MoM but the YoY downtrend is on. This is the only section that could be considered problematic for inflation. A negative sign of easing inflation.

   

3. Cleveland FED`s Trimmed mean inflation: Excludes the biggest outliers in either direction and takes the average of the rest. It has dropped to 4.29% from 7% levels. The downward trend is on but still not enough. A positive sign of easing inflation.

4. The Atlanta FED`s sticky price CPI: Products whose price takes a long time to change and cannot easily be reduced. Eased to 5% levels. A positive sign of easing inflation

   

   • The impact of the `worse than expected` headline number on the S&P 500 was limited.

• Summing up the pre-war global markets: Leading up to last Friday's nonfarm data release, there was a significant sell-off in bonds, causing yields to rise. This was driven by the anticipation of an additional rate hike and a relatively hawkish stance from Federal Reserve members. While the data initially appeared to support this narrative, factors such as conflicting surveys from households and businesses played a role. As a result, the S&P 500 index managed to close the week at around $4,300 levels, exceeding its 200-day Exponential Moving Average (EMA). In the context of the "higher for longer" discussion, my perspective is that the nonfarm data may be backing the concept of "longer" sustained high rates, but not necessarily "higher" rates.

• In my opinion, I still anticipate an upward trend in bond yields. It's essential to note that aside from these geopolitical concerns, the primary driving force behind global market dynamics has been the movement in bond yields, particularly the significant shift in the long end of the yield curve, often referred to as a "bear steepening." This phenomenon suggests a return toward a more conventional yield curve, where long-term rates surpass short-term rates.

• The anticipation was that the main influencers of market dynamics for the week would be geopolitical risks and CPI data. However, the spotlight unexpectedly shifted to the 30-year treasuries auction. Given the existing geopolitical concerns, strong demand was anticipated, but surprisingly, there were few buyers, leading to a significant increase in the 30-year yield to 4.87%, and as a result, the S&P 500 (SPX) retreated to around $4,320 levels on Thursday.

  

• At the weekly market close, there was a surge in demand for bonds, gold, and oil as a precautionary measure against potential geopolitical risks over the weekend. The S&P 500 experienced a decline of approximately 0.5%. Cryptocurrencies, on the other hand, remained relatively stable. In summary, the market sentiment leaned toward a more RISK OFF!

• Furthermore, Chinese import data suggests a rise in the importation of energy commodities, which is contributing to the upward momentum in oil prices.

• JPMorgan, Citigroup, and Wells Fargo all experienced premarket gains following better-than-expected earnings reports.

  

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

CALENDAR

Tuesday (19/09)

• EU CPI YoY AUG: Actual: 5.2%, Forecast: 5.3%, Previous: 5.3%

• US building permits AUG: Actual: 1.543M, Forecast: 1.440M, Previous: 1.443M

Wednesday (20/09)

• UK CPI YoY AUG: Actual: 6.7%, Forecast: 7.0%, Previous: 6.8%

• EU ECB member speeches

• US FOMC economic projections

• US FED interest rate decision: Actual:5.5%, Forecast: 5.5%, Previous: 5.5%

Thursday (21/09)

• UK BoE interest rate decision: Actual:5.25%, Forecast: 5.5%, Previous: 5.25%

• US Philly FED manufacturing index SEP: Actual:-13.5, Forecast: -1.0, Previous: 12.0

• US Existing home sales AUG: Actual: 4.04M, Forecast: 4.1M, Previous: 4.07M

• JP BoJ interest rate decision: Actual: -0.1%, Forecast: -0.1%, Previous: -0.1%

MACRO

• CPI numbers:

  

  • 13/09 US CPI data came in slightly above expectations on a monthly basis but in line with expectations on an annual basis. Core inflation data was also above expectations MoM, while in line with expectations YoY.

  • YoY core good inflation change is 0.2%. The downtrend continues.

  • There is also a continuation of the downtrend of core service inflation. 

  • Core goods inflation is influenced by short-term inflation expectations and import prices. Core services inflation is influenced by long-term inflation expectations and the level of demand and supply in the domestic labor market.

  • The YoY change in the super core inflation(Core services-shelter) is 4.5%, and 0.37% in MoM. There is a slight increase in the MoM data but the YoY data is flat.

• Contrary to the market expectations, the ECB raised the rates by 25 bp points to the 4.5% level.

  •  “ Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”

  • The above statement signals the end point of ECB rate increases is soon. 

  • It also means that they would favor keeping the reached level of rates for a long time rather than increasing it more. We see the impact of this situation on EURUSD pricing.

• PRE-MEETING: FED officials are set to hold interest rates steady but the discussion is the potential cost of lifting rates again this year.

  • Projections on rates will be influential on market pricing. The dot plot will show FED members’ views on 2024 rates. We need to monitor if the projections made in June are in line with the new ones. An additional rate hike is needed to match the projections made in June.

  • Since an additional rate hike is still on the table with the current macroeconomic circumstances, "the new dot plot" would be in line with the June projections in which the median projection is an additional rate hike until the end of the year.

  • Also when you compare projecting one more rate hike and opting out a rate hike, the former one is a lot easier from the communication perspective. Especially in an environment where the headline inflation increased due to gas prices.

  • We might expect to see fewer officials’ votes on the team “additional hike” because the current debate is whether to favor maintaining high-interest rates or increasing the rates more as it happened on ECB.

  • We also need to pay attention to the 2024 rate projections to evaluate the potential length of the high-interest rates. In the last projection, the median forecast was between the 4.5% - and 4.75% range. 

  • Expecting a cautiously optimistic tone from Powell makes sense amid the current environment. Probably we are going to hear “We are not done yet”

• AFTER THE FED MEETING: Federal Reserve officials voted to hold interest rates steady at 5.5%

  • Revised GDP and Unemployment Projections: The upward revisions in the median Real GDP and unemployment projections for 2023 and 2024 suggest that the Fed views the economy as resilient. This provides them with the flexibility to consider future rate hikes if necessary. It's important to note that the Fed often uses these projections as key factors in its policy decisions.

  • PCE Inflation Projections: The upward revision of the median Personal Consumption Expenditures (PCE) inflation projections for 2023 signals that inflation remains a concern for the Fed. This suggests the possibility of further rate hikes in 2023 to combat inflationary pressures.

  • Federal Fund Rate Projections and Dot Plot: The Fed's decision to revise the federal fund rate projections upwards aligns with their inflation expectations. The dot plot indicates that the Fed anticipates a prolonged period of relatively high-interest rates.

  • Duration of high rates: The main discussion had been the highest level of the rates until now. As highlighted in the analysis, the duration of these high rates is a significant consideration for financial markets.

  • Hawkish Tone and Risks: The Fed's persistence in a hawkish tone suggests that they will continue to prioritize controlling inflation. The analysis rightly points out potential risks, including a government shutdown(budget dispute), student loan repayments, labor strikes, and rising gas prices.

  • Powell's Comments: Powell's comments about the Fed's base scenario and the concept of a "soft landing" introduce an element of uncertainty. He first replied that the `soft landing` is not their base scenario then he said that they are trying to make the soft landing real. 

  • Soft Landing Expectations: The reference to a "soft landing" as the base scenario implies that the Fed aims to engineer an economic slowdown without triggering a recession. If negative economic data emerges, it could lead to speculation of a "Fed pause" on rate hikes to avoid damaging economic growth, which would lead to a decrease in rates and DXY.

• BOE interest rate decision: The decision to keep the interest rate unchanged at 5.25% reflects the central bank's cautious approach. The fact that five out of nine members voted to maintain rates, despite four members advocating for an increase, indicates a divided sentiment within the central bank's decision-making body.

  • Core CPI Decline: The decline in the core CPI from 6.9% to 6.2% for August suggests some moderation in inflationary pressures even though wage inflation remains high. The declining inflation numbers had decreased the probability of a rate hike for the meeting.

  • Balance sheet reduction and a potential shift in monetary policy: The ongoing decision to reduce the size of the balance sheet by 100 billion pounds in one year is an indication of BoE`s commitment to tightening its monetary policy and draining liquidity from the financial system but the decision not to raise rates after 14 consecutive rate hikes signal a potential shift in monetary policy stance. it suggests that the central bank may be more careful about other economic factors beyond inflation.

  • Market expectations for future rate hikes: The market is pricing a 25 basis point hike for the rest of the year at around 55%.

  • In summary, despite elevated inflation, growth-based risks have played a significant role in shaping the central bank's rate decision.

• BOJ did not change the policy rate and maintained the yield curve control.

  • Despite Japan`s core CPI being well above its 2% target, the BoJ maintained a loose monetary policy.

  • As you can see in the 5th article below, they want to maintain the 3.1% level of core inflation with the accompanying wage increases. Contrary to other central banks, the BoJ needs relatively sticky inflation.

    

  • Before the meeting, the market was expecting a potential signal of shifting from the yield curve control since the inflation numbers have already come well above the target. Accordingly, we saw positive pricing on JPY against other currencies. However, expectations were not met and JPY moved back to its pre-meeting levels.

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

GLOBAL MARKETS OVERVIEW

• The main topic of 2023 was the “Soft Landing”. With the recent data flow, the market started to be convinced. The below table shows banks’ views on the recession.

  

• So what’s threatening the soft landing scenario lately??

  • The data flow from China has been signaling an economic slowdown lately. The evergrande solvency issue in the real estate industry, shadow banking industries newsflow, industrial production data, retail sales, and recent disinflationist structure.

  • As a result of that, PBoC had decided to cut one-year loan rates by 15 basis points on August 15 as part of the support package. In addition to that, on 21/08, they cut the prime rate by 10 basis points. The expectation was 15 basis points. Since they also need to protect Yuan from devaluation, they can not be aggressive enough on rates. Selling USD in the UK market is another tool that they employ for protecting the Yuan.

  • Apart from the China side, another indicator of recession is the yield curve inversion which is another hot topic that drives market pricing lately the most.

  • So when we see an inversion, it means that the short end of the yield curve is higher than the long end of the yield curve. That means short-term credit conditions are getting tighter and it makes it difficult to finance the growth. Banks borrow short and lend long. When the yield curve inverts there is no profit for banks because borrowing costs become higher than lending rewards. That leads to a recession.

    

• However, we have been observing reverse back moves from an inverted yield curve to a normal yield curve for a few weeks. We have seen an increase in both yield curves but more on the long end of the curve which signals a normalization.

  

• When the above graph increases, it means that 10y yields rise more than 2y yields. It could be considered as “normalization”. Considering the Fed’s 2% percent inflation target, seeing a normalization of around 3% inflation levels, raised concerns of a new normal that is similar to pre-2008 when high interest rates were normal.

• The market might be pricing that soft-landing will occur around the current inflation levels which are higher than the Fed’s target. Then they might be saying that if we are going to normalize around these levels, the current yield is not attractive so let’s sell the bond market.

• To evaluate the validity of this scenario I would like to watch US indices closely because if a scenario is sourced by “soft-landing” or “no recession”, we would naturally expect strength in US equities despite the price action on the yields.

• At some point, I might expect a shift from the “high yields, low indices” structure, especially on the equities side. As we see further reverse back from an inverted yield curve, it will increase the probability of a “no recession” scenario.

• Accordingly, we will need to monitor China closely to evaluate recession probabilities and their impact on the yield curve.

• Amid the above structure,

  • 23/08 weak PMI data led to a decline in the market's expectations for a more aggressive Fed rate, reversing the recent uptrend of the yields.

  • With the support of NVDA earnings, US equities outperformed.

• Newsflow from the Jackson Hole Symposium will be influential in determining the direction of the market.

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

GLOBAL MARKETS OVERVIEW

• To have a wider perspective, let’s start by remembering what has come through from the end of 2021 until now. Risky assets experienced their steepest decline in history in the first 6 months of 2022. This was due to the "sticky inflation" that we observed in October 2021 inflation data that we received in November 2021. However, the market trend reversed in 2023 with the expectation of central banks had reached their peak interest rates and the ceiling interest rate is almost there.

• If central banks have reached the peak of interest rate hikes, it is unlikely that we will see investors selling off risky assets. However, if there are two more rate hikes as expected, we may see some profit-taking. We may get a better idea of what to expect from the FED as we will be receiving the FED minutes this week.

• The Kansas FED’s research also supports the hawkish tone that they have had since the last meeting,

  

  To Reach the Fed’s Inflation Target, Interest Rates May Have to Remain Restrictive for Some Time

  

  WSJ - Nick Timiraos articles are particularly important during the period when FED officials are not allowed to speak before the committee meetings.

• The PCE data that we received last week does not support a sell-off in risky assets. As you can see in the below table the slowdown in the rate of increase in the core inflation is positive.

  

• This week the market will be monitoring the non-farm payroll data apart from the FED minutes. I will be paying the most attention to the “average hourly earnings” data given the FED’s emphasis on wage-based inflation risks.

  

Amid the volatility sourced by data flows, I would like to mention that the tightening path in the UK and Europe seems longer than in the US considering both data and rhetoric from the relevant central bank members. That is why a technical bullish signal for GBP or EUR against a USD might be considered as an opportunity to follow the trend.

Net non-commercial future positioning which is known as CFTC COT(commitment of traders) data also supports the GBP long positioning. The yellow line below shows the net non-commercial future positioning and the blue line is GBPUSD itself. You can track the way both graphs interact. You can also track COT positions from the blue bars below.

I hope you have a happy and productive week!

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The investment information, comments, and recommendations I provide to you are not investment advice. These recommendations are general and are not specifically tailored to your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not produce results in line with your expectations.

GLOBAL MARKETS OVERVIEW

• Last week,

  • US PMI data came in lower than expected. This supports the idea that we are starting to see a "lagged impact" of FED policies. European PMI came better than expected, Europe is behind the US on the tightening path.

  • On Tuesday, JOLTS Job opening data came in lower than expected, meaning that fewer companies are looking for workers than expected. Made us question FED's view on a robust economy.

  • On Wednesday ADP non-farm data came below the expectation. In addition to bad JOLTS data, another bad data for the real economy led to a decrease in the rate increase probabilities. The market’s reaction made me think of the shift from “decrease in rate hikes probabilities - good for risky assets” to “bad data-higher recession risks-sell risky assets”.

  • On Wednesday non-Manufacturing PMI data came lower than the expectation. This revived the recession fear and caused negative pricing in risky assets.

• On Friday(07/04),

  • US Non-Farm Payrolls MAR: Actual:236K, Forecast:230K, Previous:311K

    236K payroll is lower than the average for the last six months(334K) and 3 months(345K). There is a clear downtrend on the payroll side as FED suggested. In that regards the data is in line with the FED’s expectations.

  • US Participation Rate MAR: Actual:62.6%, Previous:62.5%

    The participation rate has slightly increased, as per the FED's plan to boost labor supply and mitigate the risk of inflation caused by high wages. The FED has also previously stated that combating inflation requires increased unemployment(soft landing), which can also be achieved by a higher labor supply. In that regard, an increasing participation rate would also be another indication that we might be close to the end of the tightening cycle.

  • US Avg Hourly Earnings MoM MAR: Actual:0.3, Forecast:0.3%, Previous:0.2% US Avg Hourly Earnings YoY MAR: Actual:4.2%, Forecast:4.3%, Previous:4.6%

    Despite the monthly data coming parallel to the expectation we saw an important decrease in yearly data. This is a good sign of mitigating the risk of sticky inflation. Also, as shown in the table below, the weekly earnings have been decreasing for 3 consecutive months.

• Overall, the nonfarm data supports the idea of soft landing which means that we are getting closer to the end of the tightening cycle.

  But, this shouldn’t be understood that we should see immediate positive pricing in risky assets because we have an upcoming FED meeting with the expectations of a 25 bp rate hike. With the current environment, I expect to see short-term limited negative pricing in risky assets due to the ongoing tightening cycle, followed by medium-term positive pricing thanks to the soft landing. 

  The current technical level of DXY also supports this idea. I wouldn’t be surprised if I see a rejection from 102$ level since it's a critical support level on the monthly DXY graph. 

  

  The possible rejection of DXY from the 102$ level coincides with the important resistance of the ES1! As you can see below. You can see my potential expectation for SP 500 in the below graph.

  

  Also with the upcoming rate increase, we could expect to sell off bonds in aiming of getting bonds with higher returns. The below “20+ years bond ETF - TLT” is also trading at a crucial 109.3 $ resistance level where we can see a slight rejection due to a rate increase.

  

  Let’s finally add Bitcoin to the basket. As you can see BTC is having difficulty passing the 28600 $ level which is a crucial old support new resistance level. With an expectation of “short-term negative pricing in risk assets”, I would expect a limited retracement on Bitcoin and then a relief with the “soft landing”. Bear in mind that the case of BTC has a few layers since it also acted parallel to Gold in the recent SVB banking crisis.

  

• On upcoming inflation data,

  

  If the upcoming inflation data comes surprisingly below expectation there is a possibility of skipping fast the “short-term negative pricing in risk assets” that I mentioned above or vice versa if it comes aggressively higher than expected the potential “short-term negative pricing in risky assets” may take longer than we think.

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