Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Trader Strategy
You can access both of our platforms from a single Saxo account.
Gold & everything is correlated to one
Steen Jakobsen
Chief Investment Officer
Summary: We see small signs of top being established: the two driving forces - lower real rates and the expansion of Fed's balance sheet - are both having engine failures.
Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong.
Ayn Rand
The global narrative is that the Fed will stay put through 2022 – leaving “free money” on the table. This is now supported by the incoming fiscal spending which will be north of $1.5 trillion when the deal is reached, taking the deficit to a magical 27% of GDP!
Over the last couple of days we have noticed how minute changes to real rates unearth the excessive leverage of the market. For example, gold tanked from $2060 to $1997 an ounce due to a 7-8 bps move against it in real rates. Yes, the positioning is extended, but so are the Fed and government responses, which are both guaranteed to increase in size.
So, if 7/8 bps creates this kind of havoc, imagine what would happen if we have an inflation boost, or if the Fed is insistent on not letting interest rates become negative. Failing to do so will increase real rates, which is the actual consequence of expanding debt – i.e. negative growth and inflation as debt increases.
Furthermore, as everything is correlated to 1, we are about to violate the very premise on which most of the positioning is done: falling real rates and expanding Federal reserve balance sheet. The Fed balance sheet is falling and real rates are rising, meaning that we are in total violation of the facts and the narrative, which temporarily to me at least is a massive warning sign and a time to consider buying some more puts to safeguard the gains.
Over the last couple of days we have noticed how minute changes to real rates unearth the excessive leverage of the market. For example, gold tanked from $2060 to $1997 an ounce due to a 7-8 bps move against it in real rates. Yes, the positioning is extended, but so are the Fed and government responses, which are both guaranteed to increase in size.
So, if 7/8 bps creates this kind of havoc, imagine what would happen if we have an inflation boost, or if the Fed is insistent on not letting interest rates become negative. Failing to do so will increase real rates, which is the actual consequence of expanding debt – i.e. negative growth and inflation as debt increases.
Furthermore, as everything is correlated to 1, we are about to violate the very premise on which most of the positioning is done: falling real rates and expanding Federal reserve balance sheet. The Fed balance sheet is falling and real rates are rising, meaning that we are in total violation of the facts and the narrative, which temporarily to me at least is a massive warning sign and a time to consider buying some more puts to safeguard the gains.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX outlook: Tariffs drive USD strength, until...?
John J. Hardy
Global Head of Trader Strategy
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...