Out Of The Frying Pan And Into The Fire

The macro situation keeps getting more complex, and complexity often equates to uncertainty. Last week, the US CPI print came in even higher than expected, topping all economist forecasts (we discussed the implications of this in last week’s report, “Bitcoin Is Not An Inflation Hedge”).

This week was filled with more macro developments. The Bank of Japan raised its inflation forecast but maintained ultra-low interest rates despite the yen’s recent weakness and souring import costs. The implications of this are not without consequence though. Astonishingly, even with the unlimited bond buying promise, the 10-year JGB saw yields briefly ‘de-peg’ to levels beyond the 0.25% cap last month. This will be an important trend to watch given the high risk of further dollar strength from here.

The BOJ’s steadfast policy goes against the grain of most major central banks, but that’s a risk they’re willing to take in favor of continued stimulus. The Fed is well into its latest rate hike regime while the ECB surprised the market yesterday with a 50bps rate hike (expectations were for 25bps) as they liftoff for the first time in 11 years. The ECB also announced the creation of the Transmission Protection Instrument (TPI), a commitment to buy bonds of countries facing “unwarranted, disorderly market dynamics”. The program is aimed at providing aid to more indebted EU countries in hopes of “preventing financial fragmentation within the currency bloc.”

QT for Germany, QE for Italy? The challenge to make everyone happy is only getting harder.

We provide more context on recent macro developments in our Weekly Market Musings section below.

Bottom or Bear Rally?

Risk assets have finally had a decent few weeks, rallying off of the June lows, notching some much-needed relief and reprieve from the relentless selling of the two months prior.

At the risk of sounding redundant, we want to reaffirm the idea that this i