Macro Digest: Too much priced into 2019 already

• Market has done a 180 degree turn on direction of US yield – from talking 400+ bps in 10Y US to now trading @270 bps!  (see chart blow)  // Furthermore "market" is now pricing FED to cut rates in 2019!!!

 

• This is VERY unlike in the present narrative carried by Fed – a pause – our position since Q3-2018 – very likely, but a direct cut is NOT what Fed is looking or even preparing for…

 

• Having said that we still see "recession light" in 2019 as the Four Horsemen – our 2018 macro theme still is playing out negatively and now on reported data…

 

• There will be "trade deal light" but as with other Trump "deals" they are not worth the paper they are signed on. China and US both needs this – hence we will get "something"

 

• Inflation has collapsed – increasing REAL YIELDS, so despite lower nominal rates the overall "price of money in real terms" still punitive….

 

• We still expect "cycle-low" in markets to be here in January……

 

 

 

Our take / Investment  change:

 

Move from OVERWEIGHT US FI to slight UNDERWEIGHT……..Selling US 10 Y Futures @ 121 29/32 w a 122 29/32 stop.

 

 

 

 

 

This was our 2018 macro theme…

 

Price of money rising (QT, FED hikes, ECB lowering support and BOJ stealth, but PBOC expansion into panic)

Quantity of money "collapsing" … QT, aftermath of China deleverage, macro prudential one-off (RBA(housing), less ECB and BOJ)

Anti-globalisation – Trump in 2018 was all about CHINA negative…

Energy – prices hit highs in US dollar but ever higher in weak EM currencies – net impact: less consumption

 

 

 

The 2019 Macro theme:  Global Policy Panic.

 

Already seen:

 

• RRR cut in China – promises of tax cuts and monetary easing.
• FED Powell – looking at down-side risk….
• RBA in rhetoric panic over state of lending, SME and housing…..
• ECB dovish as ever… and a new incoming President an issue…

 

 

 

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