I wanted to share a quick update: an incredible professional opportunity - truly too good to pass up - has come along, and it requires my full focus. Because of that, I won’t be able to continue writing here for the time being.

Thank you so much for reading, engaging, and supporting this project - it has genuinely meant a lot. I’ll be keeping the page up, and if I ever have the space to share more thoughts again, you’ll be the first to know.

I’ll still be working on my macro strategies for my own investments - building models, monitoring STIR markets, and following economic developments. And should I return at some point, I can promise one thing: it will be with even better insights than before.

But for now, I need to step back and focus fully on this new chapter. In any case, I’m incredibly grateful that you’ve been part of this.

It’s a fascinating time to be a global macro investor. Inflationary pressures are lingering, debt levels around the world are stretched, and geopolitical tensions remain high. At the same time, we’re seeing major central banks experiment with new approaches to monetary policy.

QE has failed to stimulate meaningful economic growth - and central bankers know that now. But if QE no longer serves that purpose, and banking regulation continues to demand ever-larger reserve buffers (think LCR ratios, etc.), the question becomes: how do central banks provide the necessary reserves to the system?

That’s where policy frameworks will begin to diverge over the coming decade. The Federal Reserve continues to operate a supply-driven framework, estimating the least comfortable level of reserves and supplying them via the Standing Repo Facility (SRF) and QE - or “reserve management”.

In contrast, the Bank of England and the European Central Bank are moving toward demand-driven frameworks, where reserves are provided primarily through repo operations. That means less QE - no large-scale bond buying - and more repo facilities such as the BoE’s STR or the ECB’s MRO.

What does this mean? The central bank footprint in global bond markets - not in repo markets - could shrink over the next decade. In other words, the private sector will increasingly have to absorb bond supply, while central banks focus on ensuring there’s enough liquidity to fund it.

The price-insensitive buyer of bonds - central banks - will become less active, while the price-sensitive buyer - the private sector - will have to step in, at least to some degree.

For macro investors, this is exciting. It could mean greater volatility in bond markets, and perhaps even a renewed sense of independence between governments and central banks, as the latter step back from funding public deficits via QE.

With that long-term thought on the evolution of monetary policy, let’s dive into this week’s article.

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U.S. Economic Data - Gradual Cooling of the Labor Market

We had a wave of U.S. economic data this week - let’s review.

The ISM Manufacturing PMI came in weaker than expected (48.7 vs. 49.5), with new orders (49.6) and employment (46.0) still in contraction territory.

On the other hand, the ISM Services PMI surprised to the upside (52.4 vs. 50.8), driven by stronger new orders (56.2 vs. 51.0) and less contractionary employment (48.2 vs. 47.6).

The concern in the Services report is the prices paid component, which remains elevated (70.0 vs. 68.0). Back in 2022, this series (blue) was a solid leading indicator for core PCE (grey) - suggesting that services inflation pressures remain sticky.

The ADP report showed private job growth of +42k (BBG consensus: +30k; Kalshi consensus: +36k), consistent with the theme of a gradually cooling labor market rather than a sharp slowdown.

According to Revelio Labs, nonfarm employment fell by 9k in October - a decline driven by government job losses offsetting small private sector gains.

There’s also been a rise in job cut announcements recently. While headline layoffs can sound alarming, it’s worth remembering that roughly 1.7 million layoffs occur each month in the U.S.

Still, this time the announcements seem meaningful - as Warren Pies’ chart on Challenger net hiring (hiring plans minus job cuts) shows, labor demand looks materially weaker than in prior years.

A softer labor market also implies slower income growth, which we’re starting to see in federal employment tax receipts. The latest print of +3.4% marks a notable slowdown.

This gradual cooling is something to watch. If the labor market eventually rolls over and aggregate incomes stagnate, consumption will weaken. So far, that hasn’t happened - but the risks are rising.

The Redbook Index, a timely gauge of retail sales, held steady at +5.7% YoY this week. As long as employment remains stable, I expect consumption to remain resilient as well.

We also had the Quarterly Refunding Announcement (QRA) this week. As expected, the Treasury kept coupon auction sizes unchanged, but noted:

„Treasury has begun to preliminarily consider future increases to nominal coupon and FRN auction sizes, with a focus on evaluating trends in structural demand and assessing potential costs and risks of various issuance profiles.“

At some point, the Treasury will have to increase coupon auction sizes and reduce bill issuance. Year-to-date, total issuance stands at $1.54 trillion, of which $850 billion are bills and only $204 billion are coupons.

If this trend continues, the Treasury’s debt profile would become heavily bill-dependent - bills currently account for roughly 21% of total outstanding debt. The math makes it clear: more coupon issuance is inevitable.

The chart below shows how total issuance - especially bills - has surged in recent years.

When the Treasury does increase coupon auction sizes, the market will need to absorb more duration. If the Fed adjusts its reinvestment policy toward bills at the same time, that shift could have meaningful implications for bond markets. For now, though, this is a 2026 story.

Summary:

• The labor market continues to weaken gradually, but hasn’t rolled over yet.

• The consumer remains healthy, with steady consumption growth.

• Services inflation remains sticky.

• An increase in coupon auction sizes in 2026 looks increasingly likely.

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Global Macro Trading - It Is Never Easy

I started the week positioned long U.S. dollars, long Corra Dec’26, and long SOFR Jun’27 versus short SOFR Jun’26. The idea was straightforward: a stronger U.S. dollar against the euro, a softer Canadian economy, and fewer near-term cuts followed by more once Powell leaves the Fed.

My Corra Dec’26 position was relatively small, but as I mentioned last week, I was considering doubling it - which (unfortunately) I did on Monday.

Then came Friday’s Canadian employment data: +66k jobs vs. -5k expected - a big beat.

There is one important caveat, though. Full-time employment fell by 18.5k, while part-time employment rose by 85.1k, which suggests the Canadian economy is still on shaky ground. But with the unemployment rate falling from 7.1% to 6.9%, it’s fair to say it might have peaked for now.

Core inflation in Canada bottomed roughly a year ago and hasn’t softened further, even as the labor market weakened. Friday’s report also showed wage growth accelerating to 4% (vs. 3.5% expected). The last core inflation print of 2.8% remains above target, and we’ll get the next read on Monday, November 17th.

Given this backdrop - a central bank signalling no more cuts, stronger-than-expected employment data, and persistent wage and inflation pressures - I decided to close my Corra Dec’26 position on Friday, taking a ~0.4% loss. I’ll keep monitoring the data; this may turn out to be a temporary blip of strength.

My SOFR spread remains around 3bps in the money. It should continue to work if we see weaker U.S. labor data or a prolonged government shutdown, but I’m keeping it on a tight leash - I don’t want this trade to turn red.

As for the euro, next week’s price action will be key. It tried to rally on Thursday but ran out of steam on Friday. I still expect more downside - and in the next section, I’ll explain why I think the euro should weaken further.

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Why I Believe the Euro Is A Structural Short

The main reason for my long-term bearish view on the euro is simple: Germany. Once Europe’s economic powerhouse, it has become the “sick man of Europe.” And I don’t think any other European country - not France, not Italy - will be able to fill that gap.

Unlike most other developed economies, Germany still relies heavily on manufacturing. In 2023, manufacturing made up 18.4% of Germany’s GDP (France: 9.7%, U.S.: 10.3%). Roughly 20% of total employment is in manufacturing, and 11% of those jobs are directly tied to the auto sector. Yet policymakers seem oblivious to how vital this sector is - and their policy choices have been actively damaging.

Germany now has:

• The highest household electricity prices in Europe

• The highest corporate tax rate among G7 countries

• 60% more federal legislation (i.e., bureaucracy) than in 2010

Germany’s industrial base is struggling - industrial production is now running ~20% below trend.

Private investment is falling (blue), government spending keeps rising (red), and GDP has been flat since 2019. That’s more than five years of stagnation.

The divergence between private and public sector activity is striking: the private sector has stopped investing, while the government props up GDP through spending. Fiscal deficits have masked the underlying weakness - but hiring another 10,000 public employees or announcing a new infrastructure plan doesn’t create sustainable output. It’s artificial GDP support.

Germany could change course - lower taxes, cut bureaucracy, restart nuclear, reduce welfare spending, and invest in infrastructure and defense - but it hasn’t. Even the new €500bn fiscal package likely won’t move the needle; much of it will go to plugging budget gaps rather than stimulating private investment.

And Germany isn’t the whole of Europe. France is running deficits near 5% of GDP with debt at 113% of GDP. Italy is worse at 138%. Demographics are another drag:

• Italy: 48.4 years

• Germany & Spain: 46.8 years

• France: 42.6 years

• United States: 38.9 years

Europe’s smaller economies — Portugal, Greece, Belgium, the Netherlands — simply aren’t large enough to offset this. Spain is a relative bright spot, but that’s about it.

Politically, Europe’s instinct is clear: when growth stalls, run deficits, and when debt and yields rise, ask the ECB to intervene. Structural reform rarely makes the list. Until that changes, I find it hard to build a structural bull case for the euro. This week’s headline:

None of this calls for a structural bull case for the euro. And sentiment is not bullish the US dollar either. I read this on X this week: “The US dollar is expected to continue to decline,” per Morgan Stanely, $MS.

One area worth monitoring is Eurozone inflation. Services inflation remains sticky at 3.4%, and core inflation is still above target at 2.4%. I don’t expect a re-acceleration, but persistent services inflation could delay rate cuts. Chart: here.

Finally, I’m watching the Euribor Dec’26–Dec’27 spread, which still prices in 20bps of hikes in 2027. If inflation doesn’t re-accelerate and Germany’s fiscal package disappoints, those hikes should be priced out. I haven’t opened a position yet - but it’s on my radar.

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Equities - When AI News Are Fully Priced

The company of the year - Palantir - reported earnings on Monday. Every metric beat expectations, yet the stock is down about 15% since. Even after the selloff, it still trades at a forward P/E of 245x - a reminder of just how stretched valuations in the AI space remain.

By Tuesday, the tape felt heavy (red arrow). Markets no longer seemed impressed by AI headlines. And the next day, November 5th, we saw the third Hindenburg Omen signal - another technical warning worth noting.

One indicator I continue to track is the number of S&P 500 stocks with RSIs below 25. So far, this hasn’t triggered a buy signal.

As I mentioned last week, I planned to raise cash in my tax-efficient investment account - and I did exactly that on Monday. I’m now sitting at 43% cash, which helped me sidestep much of the recent drawdown.

That said, time in the market beats market timing. I’ll likely re-deploy some of that cash early next week, most likely into the S&P 500 and the Indian stock market. The Nifty 50 looks interesting here - it’s retesting its trend line on the daily chart.

Below is the long-term weekly chart of the Nifty 50 Index, which continues to look structurally strong.

That’s it for this week - I hope you enjoyed the article.

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It’s Saturday morning - I went for a 10km run, watched the sun rise, and had a great breakfast. Now, I’m sitting at my desk with a coffee, writing this article. It’s a good day - and the fact that markets got more interesting this week makes it even better.

I like to think of global macro investing as the world’s largest, most complex, and most intellectually challenging strategy game. If you’re like me - curious about how the world works, opinionated, and long-term focused - then global macro is your playground without limits.

Having said that, let’s dive into this weekend’s article.

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This Week’s FOMC - Main Takeaways

This week’s FOMC meeting delivered a hawkish cut. The real question is: how hawkish? The rate decision itself wasn’t the catalyst - it was this Powell line:

“A December cut is not to be seen as a foregone conclusion. In fact, far from it.”

Before the press conference, SOFR pricing implied one 25bps cut in December. Just a few weeks ago, the SOFR curve was pricing in more than two cuts across October & December. Powell also stressed that the committee has “strongly differing views” on the path ahead. Roughly half want to pause in December, the other half want another 25bps cut.

There are only two people on the Fed board - Bowman and Waller - that Trump is considering for Fed Chair. As you would expect, both voted for a 25bps cut. Perhaps some within the committee are now trying to assert independence from Trump’s influence.

The half that wants to pause in December has a solid case. The Atlanta Fed’s GDPNowcast forecasts 3.9% GDP growth in Q3-2025, core PCE rose from 2.6% in April to 2.9% in August and the unemployment rate is low at 4.3%. So why cut interest rates right now?

Breakeven NFP is around 30,000, which is very small relative to a labor force of roughly 170 million. In an economy that large, does it make a difference if NFPs print 25,000 or 40,000? And is it worth cutting interest rates multiple times to chase that? Danny Dayan made this point earlier this week.

We also got news on the Fed’s balance sheet policy. Quantitative tightening will end and mortgage-backed security (MBS) redemptions will be re-invested into bills starting December 1st. I do not think this policy change will have a major impact on financial markets.

Eventually - probably in 6 to 9 months - the Federal Reserve will start to grow reserves again. If they are serious about matching the weighted-average maturity of outstanding Treasuries, they will buy bills or sub 5-year coupons. Call it what you want - reserve management or quantitative easing.

Bottom line: uncertainty around the future path of interest rates has increased. With limited economic data, Fed speeches and private data sources are now the best tools to gauge whether the Federal Reserve will cut interest rates in December. So let’s take a look at that.

Fed Speakers and Retail Sales

Comments from Fed officials last week were revealing. Bostic - who currently has a vote on rate decisions - said:

BOSTIC: EVENTUALLY GOT BEHIND THIS WEEK’S RATE CUT

BOSTIC: GLAD POWELL SAID DEC. CUT IS “FAR FROM” FOREGONE MOVE

Hammack and Logan, who don’t currently vote but will rejoin the rotation after the December FOMC, leaned hawkish. On Friday, Hammack said:

HAMMACK: I WOULD’VE PREFERRED TO HOLD RATES STEADY THIS WEEK

HAMMACK: INFLATION BROADER THAN TARIFFS; CORE SERVICES STRONG

Logan agreed, saying: “I did not see a need to cut rates this week,” and added that she’d “find it difficult to cut rates again in December unless there is clear evidence (…)”.

Then there’s Waller - widely seen as a top contender for the next Fed Chair - who said on Friday: “I’m still advocating that we cut interest rates in December.” Of course he is. As Powell described, the committee is clearly divided.

Beyond the Fed chatter, one alternative data point stood out: the Redbook Index, a useful proxy for retail sales. It suggests annualised sales growth of around 5%, consistent with my view of a still-strong U.S. consumer - supported by solid private sector balance sheets and the wealth effect.

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STIR - What is Priced Into SOFR, Euribor & Corra?

Whenever SOFR pricing deviates meaningfully from the Fed’s Summary of Economic Projections (SEP), it’s worth paying attention. Just a week ago (green line), the SOFR curve was pricing roughly 40bps more cuts than the Fed projected in its latest SEP.

Following this week’s FOMC, the SOFR curve now implies a 63% chance of a December cut - still the market’s base case. After that, however, it expects the Fed to pause until April 2026.

I’m currently long SOFR June 2027 and short SOFR June 2026. The rationale:

1. Fewer cuts under Powell, and more under the next Fed Chair.

2. A stronger-than-expected U.S. economy and risk of inflation re-acceleration - meaning fewer cuts in the near term.

The trade is working so far: the spread now prices 24bps of cuts (entry: 19bps, stop: 16bps). I’d probably take profits if it moves another 5bps in my favour and stop out if it goes back to breakeven.

The Bank of Canada also cut rates by 25bps this week, but said that policy is now “about the right level.” As a result, CORRA futures flipped from pricing 5.5bps of cuts in 2026 to 5.5bps of hikes (Dec’25–Dec’26).

I’m long CORRA Dec’26, which has gone against me. It’s a half-sized position, so risk is small. Normally, I’m not a fan of averaging down - but in this case, I might add with a tight stop. If CORRA Dec’26 breaks below trend support, I’m out.

I still believe the Canadian economy warrants cuts, not hikes. The unemployment rate is up 2.3% since July 2022, the economy is stagnating, tariffs are growth-negative and disinflationary, and the latest Trump comment doesn’t help:

TRUMP: WILL NOT START RENEGOTIATIONS WITH CANADA

Across the Atlantic, Euribor futures are again pricing 7.5bps of cuts in 2026 (Dec ’25–Dec ’26). Further out, in 2027, the market expects 20.5bps of hikes (!) — down from 38.5bps on Liberation Day.

To me, Euribors pricing hikes in 2027 looks wrong, given France’s political instability, Germany’s structural economic problems, and weak demographics. I expect the market to continue pricing out hikes next year.

The main risk to this view is probably Germany’s fiscal package, which could start to support growth in 2026. But I doubt it will spark another economic wonder - Germany’s problems are structural, not cyclical.

Alternatively, an outright long in Euribor Dec ’26 looks attractive - a straightforward way to position for a weaker European economy and at least one to two cuts next year. Euribors are still only pricing in a quarter of a cut for 2026.

FX - US Dollar Strength Post FOMC

I am still long US dollars versus Euros. I think the Euro is too strong for the Europe’s export economy, yield differentials are starting to matter again, and the political narrative not to invest in the United States anymore post Liberation Day was always unrealistic. Take a look at the below chart, which shows 2-year yield differentials between Germany and the United States and the EURUSD exchange rate.

The Euro broke below the trend line I highlighted last week. The two red arrows mark the last two FOMC meetings. I expect more downside although positioning is likely not as crowded long Euros anymore.

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Equities - AI Is Still Underestimated. But Are there First Cracks?

I believe the impact of AI on the economy remains underestimated by most. I am not talking about financial markets, I am talking about the real economy. Just a few developments that I find fascinating:

• Qualcomm unveiled a new AI chip to challenge NVIDIA, while Substrate, a Peter Thiel–backed company, aims to compete with ASML. The race is no longer just about large language models - the hardware race is accelerating rapidly.

• A Wharton study found that 75% of businesses using AI report positive returns on investment, and 46% of business leaders already use AI daily. Imagine life without ChatGPT, Grok, or Gemini - productivity would drop meaningfully.

• Software engineers will soon face direct competition from AI agents. A human engineer costs at least $100,000 per year; a specialised AI agent that can do 80% of the same work will cost $300–1,000 per year.

• Anthropic’s Claude is threatening jobs in Financial Services. OpenAI hired >100 former investment bankers to replace investment banking jobs. Who’s left? Only dealmakers. Banks are slow to adapt new technology, but it will happen.

• Uber plans to launch a 100,000-vehicle robotaxi fleet with Nvidia’s help. The race for dominance in autonomous driving - between Tesla, Google, and others - is one of the biggest industrial shifts in motion.

• You can now pre-order the humanoid robot “Neo” for $499 per month, with deliveries expected in 2026. Within a decade, it’s plausible that many households will own one. Robots threaten blue-collar jobs; AI agents threaten white-collar ones.

AI is a trend that will profoundly reshape the real economy and our daily lives. But that doesn’t necessarily mean it’s time to load up on tech stocks. In fact, several warning signals for equities are flashing.

Market breadth is weakening - only 41% of S&P 500 stocks are above their 50-day moving average. While that doesn’t preclude further gains in indices, it points to underlying fragility.

S&P 500 stocks with RSI values below 25 are spiking - typically a short-term buy signal, but also a potential sign of internal weakness. The same pattern appeared in December 2024, just before the Liberation Day correction.

Similar to December 2024, the NAAIM Exposure Index indicates active investors are fully invested.

On the other hand, vol-targeting allocations are no longer stretched, the Fear & Greed Index is neutral, and AAII retail sentiment is not excessively bullish. Corporate buybacks in November and December should also provide support.

Valuations remain elevated. The Mag-7 forward P/E has reached levels that preceded prior corrections, while the S&P 500’s forward P/E is at a record high. With little room for multiple expansion, earnings will need to carry the rally from here.

I’m closely watching the U.S. 10-year yield, which broke above its trend line. A move higher - driven by a hawkish Fed, a re-acceleration in inflation, or stronger growth - could put pressure on stretched equity valuations. And what about November 5th? If the Supreme courts challenges the legality of tariffs, renewed fiscal concerns could push the 10-year yield higher again.

Crypto, the ultimate risk asset, hasn’t rebounded after the recent leverage wipe-out and has lagged equities in recent months. It’s rarely a good sign when high-beta assets roll over - remember, ARKK peaked in early 2021, long before the 2022 bear market.

Finally, the Hindenburg Omen flashed this week - a rare technical warning signal that often precedes market weakness. I’ll be watching to see if it clusters in the coming weeks. You can read more about this technical indicator here.

My game plan: in my long-term investment accounts, including my pension, I’m not making changes. In my tax-efficient investment account, I may trim some equity exposure. In my active trading account, I currently hold no equity positions - in fact, my long U.S. dollar exposure could serve as a hedge against equity weakness.

If U.S. equities correct, long Corra Dec’26 or Euribor Dec’26 positions could also benefit: lower equities → weaker consumption → slower growth → softer inflation → more comfortable conditions for central banks to cut rates. That could be a better trade than trying to time a correction in equity markets.

Those are my thoughts for this Saturday. I hope you enjoyed the article - see you next week!

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I don’t know about you, but I’m looking forward to a relaxing weekend. My weeks are usually packed - trading, workouts, business dinners - leaving little time to simply sit down and unwind.

That’s why I enjoy writing on weekends. Away from the trading floor, I finally have the space to think about what’s happening in markets and the economy. It’s become an important part of how I generate trade ideas and refine my process.

Having said that, let’s dive in!

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Equities - New all-time highs

The S&P 500 and Nasdaq-100 both closed at all-time highs on Friday, supported by a softer-than-expected CPI print and a wave of AI and robotics news. Two headlines stood out: Amazon plans to replace 600,000 workers with robots by 2033, and ChatGPT is launching its own browser, Atlas.

It’s hard to be bearish on U.S. equities when nearly all the world’s leading innovators are American companies. I’m an notorious optimist - I genuinely believe the world is getting better every day, and the pace of innovation is accelerating. The two headlines above are perfect examples of that.

On October 5th, I wrote: “The setup into year-end is constructive. In terms of seasonality, October 26th marks the Q4 low for the S&P500. And historically, November and December are the strongest buyback execution months for U.S. corporates.” I think that still holds true. Time to buy calls? Maybe.

Vol-targeting funds have already cut their exposure, meaning there’s limited additional selling pressure unless realised volatility spikes again.

The Fear & Greed Index is showing little sign of optimism - if anything, it’s leaning toward pessimism.

Retail sentiment tells a similar story: according to the AAII Sentiment Survey, 42.7% of investors remain bearish, well above the historical average of 31%.

Meanwhile, financial conditions remain easy. The Federal Reserve is likely to halt QT and cut rates, real yields have declined sharply since Trump took office, and the OBBB will add further fiscal stimulus in 2026. With equity markets at all-time highs, the U.S. consumer also feels wealthier (wealth effect!).

Most of my long-term investments remain in U.S. equities - primarily the S&P 500 and Nasdaq-100. However, I have “diversified” geographically and added exposure to the Indian stock market. I laid out my reasoning in last week’s article.

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Macro - US 10-year yields, CPI release and the US dollar

Friday’s CPI report was notable: both headline and core CPI printed below expectations (3.0% vs. 3.1%). The deceleration was largely driven by softer shelter inflation (+0.2% m/m), while core services ex-housing held steady at 3.2% y/y - still above the pre-COVID trend.

Despite the softer data, U.S. 10-year yields rose after the release - a textbook news failure. The bond market likely pre-priced the disinflationary trend over recent weeks. U.S. 5-year yields, for instance, have fallen much faster than the actual pace of inflation moderation.

Danny Dayan wrote a great article about the US 10-year yield and why the Fed’s reinvestments into long-end Treasuries instead of bills and lower maturity coupons is suppressing 10-year yields. The price action post-CPI release could be the market confirming its time to fade the rally in US rates.

The Atlanta Fed’s GDPNow model is projecting 3.9% growth in Q3 2025 - hardly a slowdown. While the labor market is softening, that weakness is largely supply-driven.

Oil prices have also rebounded in recent days - a potential signal that yields could follow. My big picture technical view on the US 10-year yield:

Assuming U.S. yields move higher, what does that mean for the dollar? In my view, the U.S. dollar remains the undisputed global reserve currency and GOAT among all major fiat currencies. The only real alternative, the Euro, continues to face deep structural challenges:

Demographics, ideological policymaking, flawed immigration systems, overextended social programs, energy dependence, export reliance, and excessive debt - Europe is falling behind. Take a look at Europe’s economic engine - Germany - versus the United States:

Germany’s foreign minister cancelled his trip to China this week after Beijing showed little interest in hosting him. Meanwhile, Eastern Europe is strengthening; Poland, for example, has become a serious competitor to Germany.

The Euro is not an alternative to the US dollar. Euro Area GDP grew by 0.1% in Q2-2025. Europe’s export-oriented economy needs a weaker Euro to remain competitive internationally. The market is starting to realise this. Yield spreads are implying a weaker Euro at ~1.12.

It looks similar for the Swiss Franc - the discrepancy is even wider.

The Dollar Index is forming a multi-month base. Friday’s reversal candle can be interpreted as a news failure. I will re-visit my thesis if the US dollar index falls below Friday’s low.

As for the Euro, I’d turn more confident in the bearish case once it drops below the trend line.

The below strategy goes long the Euro five days before the FOMC, and it goes short the Euro five days after the FOMC. The next FOMC is on October 29th - I expect Euro weakness post-FOMC.

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Trades - STIR & FX

I am running three trades right now in my active trading account:

1. I am long USD vs. EUR since Sep17

2. I got long SOFR June 2027 versus SOFR June 2026 on Tuesday, Oct21

3. I got long Corra Dec’ 2026 on Thursday, Oct23

My usual trading process relies heavily on CoT data, but with the data delayed due to the government shutdown, I’ve been looking at STIR trades in more detail. I’m not yet sure whether it’s wise to deviate from my process, as STIR trading isn’t part of my typical CoT-driven, contrarian framework.

That said, I view STIR as the purest form of macro trading. I’ve made several successful STIR calls this year, but I’m still uncertain whether incorporating them consistently will enhance my risk-adjusted returns. I suppose there’s only one way to find out!

Some examples from this year that give me confidence I can improve my risk-adjusted returns trading STIR:

• January 25th: I highlighted that the SOFR curve is pricing only one cut in 2025.

• June 22nd: I highlighted that SOFR December 2028 contracts provide value at 3.59% (now: 3.21%).

• August 9th: I wrote that Euribors pricing 6bps of hikes in 2026 seems unrealistic. Since then, Euribors have repriced to 15bps of cuts.

I got long SOFR June 2027 versus short SOFR June 2026 at -0.19 on Tuesday. Most SOFR cuts are priced in Jerome Powell’s term, i.e., before May 2026. From June 2026 to June 2027, there is less than one cut priced into the SOFR curve.

I think there is a decent chance J. Pow cuts less than expected and the new Fed Chair will cut more than priced in. I also think this trade is asymmetric:

• If the US economy and inflation slows, more cuts could get priced into the June 2026 to June 2027 part of the curve.

• If the US economy and inflation re-accelerates, cuts could get pushed out, i.e., fewer cuts from Dec’25 to Jun’26 and more cuts from Jun’26 to Jun’27.

I am not 100% confident about the timing, which is why my risk tolerance is low. I am out if the position if it runs more than 3bps against me.

I also went long CORRA Dec 2026 at 97.765 on Thursday. As I’ve written before, I think the Canadian economy is in trouble - unemployment is rising, tariffs are growth-negative and disinflationary, the housing market is correcting, immigration is slowing, and the private sector is heavily indebted.

Currently, CORRA futures (Dec ’26–Dec ’25) are pricing in 2bps of hikes - a setup that reminds me of Euribor pricing a few months ago. I believe the Bank of Canada will ultimately have to cut rates more than the market is pricing.

The main risk to this trade is a re-acceleration in the U.S. economy, which would spill over to the Canadian economy. If that happens, the SOFR curve would likely price out cuts. In that scenario, my U.S. dollar position would probably benefit. In that sense, the Corra Dec’26 trade is partially hedged.

Before we dive into this week’s macro trade ideas, I want to share a quote from Stanley Druckenmiller from an interview in 2009. I listened to the interview this week, and I like the quote because it is honest and unfiltered. You can watch the full interview here.

„We don’t want to target asset prices, but for some reason we are buying them.“ - Stanley Druckenmiller about the Federal Reserve, 2009

With that quote in mind, let’s talk about the Federal Reserve and why it will remain supportive for risk assets in the next 12 months.

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The Federal Reserve Will Stop QT - What Does That Mean?

This week’s Fed news centered on Quantitative Tightening (QT). The key headlines from Chair Powell said it all:

POWELL: STARTING TO SEE A LITTLE TIGHTENING IN MONEY MARKETS

POWELL: FED MAY END BALANCE-SHEET RUNOFF IN COMING MONTHS

I expect the Federal Reserve to slow or halt QT around October or December. Currently, the Fed is reducing its balance sheet by $40 billion per month - $5 billion in Treasuries and $35 billion in MBS.

Pausing QT now makes sense. The priority should shift toward maintaining ample reserves and preventing stress in funding markets. Money market rates have grown noticeably more volatile in recent months. The below chart shows the spread between SOFR and the RRP.

This week, SOFR once again spiked above the upper bound of the Fed funds target range. The move was driven by heavy Treasury issuance - meaning cash flowed out of the repo market - and notably, it did not coincide with a typical snapshot date such as month- or quarter-end.

SOFR, being a repo rate, can rise sharply for three main reasons:

1. Too little cash in the system,

2. Too much collateral relative to available cash, or

3. Balance sheet constraints around reporting dates (e.g., month- or quarter-end).

This latest spike reflected the first and second factor - a shortage of cash to absorb new Treasury supply. Bank reserves have now dropped below $3 trillion, hovering near 12% of total bank assets (see chart below). Reserves are no longer abundant; they’re gradually transitioning from ample to scarce.

Since the Great Financial Crisis, banks have been subject to a range of regulatory requirements. The most important one for reserve levels is the Liquidity Coverage Ratio (LCR), which requires banks to hold enough high-quality liquid assets (HQLA) to withstand 30 days of severe funding stress (=outflows).

Because bank reserves count as HQLA at a 100% weighting, they are highly valuable from an LCR perspective. Banks therefore maintain a baseline level of reserves and likely operate with internal thresholds for how much of their HQLA must be in the form of reserves.

In short, the system’s need for roughly $3 trillion in reserves today is a direct byproduct of post-GFC regulation. As banks’ total assets expand over time - roughly in line with nominal GDP - so does the structural demand for reserves.

Halting QT and allowing reserves to grow 3–5% annually isn’t a form of monetary easing; it’s prudent reserve management. And evidence increasingly points to scarcity rather than abundance - for instance, the effective fed funds rate (EFFR) has recently spiked relative to the interest on reserve balances (IORB), as shown below.

What does this mean? The effective federal funds rate (EFFR) is the overnight unsecured lending rate in the Fed funds market - a market largely dominated by foreign banks rather than U.S. domestics. The interest on reserve balances (IORB), by contrast, is the rate the Federal Reserve pays banks on their reserve holdings.

When the EFFR rises relative to the IORB, it signals tightening liquidity - a sign that reserves are becoming scarce and banks are turning more to unsecured overnight borrowing. For more than two years, the EFFR–IORB spread held steady at around 7 basis points. It’s now showing early signs of stress.

The Federal Reserve’s “Reserve Demand Elasticity” model was last updated on October 10th. The model “shows by how many basis points the spread between the federal funds and IORB rates would move for an increase in aggregate reserves equal to 1 percent of banks’ total assets.” It is worth monitoring.

The large U.S. banks, such as J.P. Morgan and Goldman Sachs, remain well-capitalized. However, funding stress may be emerging at smaller regional banks that lack direct access to U.S. repo markets. The equity market appears to share this concern - the KRE regional bank ETF sold off sharply on Thursday.

Usage of the Federal Reserve’s standing repo facility remains low - around $8 billion on Thursday. There’s no funding crisis, but there’s also no reason to risk one. I expect the Fed shares this view and will adjust its QT policy later this year.

Rather than focusing on QT, the Federal Reserve should reconsider its reinvestment policy. In my view, the Fed should avoid reinvesting proceeds from Treasury and MBS maturities into Treasuries with maturities beyond five years. Ideally, the weighted-average maturity (WAM) of Treasuries in the SOMA portfolio should align with the WAM of total outstanding Treasury debt.

Currently, the Fed reinvests heavily in long-dated Treasuries, effectively easing monetary policy by shouldering duration risk that the private sector would otherwise bear. I believe the Fed should limit reinvestments to bills and Treasuries under five years. This would likely push long-end yields higher, allowing rates to find their “true” equilibrium and reducing market distortions over the long term.

But my opinions on what the Federal Reserve should do don’t matter for trading. What matters is what the Fed is actually doing right now. Pausing QT, maintaining a long-end bias in reinvestments, and cutting rates all constitute easy monetary policy. The Fed is likely to continue supporting markets over the next year, and as the saying goes…

This was a long section about monetary policy and money markets. Let’s dive into the usual macro topics.

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Equities - Taco-Trump Supports Markets

When Trump announced 100% tariffs on China last Friday, the S&P 500 dropped 3%. And what did retail investors do? According to BofA, last week marked the fifth-largest single-stock inflow and the largest weekly inflow on a down week of 1% or more in the past 15 years - retail bought the dip.

Despite this, equities feel vulnerable. The recent crypto liquidation also failed to attract buying, with Bitcoin and most major coins selling off over the past few days. The chart below shows the S&P 500 (blue) and Bitcoin (black) since the start of the week - a clear hint of risk-off sentiment, even as Trump tries to keep markets afloat.

On Thursday, Taiwan Semiconductor reported blowout earnings, raised its revenue outlook for 2025 to mid-30% growth, and expects gross and operating margins to increase ~3% in Q4. The CEO highlighted growing conviction in the AI megatrend. Yet the S&P 500 sold off on this bullish news.

Equities are trading weaker, though some of this may be seasonal. Historically, the Q4 seasonal low occurs around October 26, followed by strong corporate buyback flows in November and December. I’m cautious about turning too bearish ahead of year-end - Trump is “taco’ing” hard. Relevant headlines from Friday:

TRUMP: SUCH HIGH TARIFFS ON CHINESE GOODS NOT SUSTAINABLE

TRUMP, ASKED IF HIGH CHINA TARIFFS WILL STAND: NO

Vol-targeting funds have reduced equity exposure. Even with reported retail inflows, sentiment surveys remain oddly bearish. The AAII survey shows 46% of retail investors expect the market to fall in the next six months, well above the 31% average, while the Fear & Greed Index has dipped back into “Fear” territory (see below).

Valuations are high. The S&P 500’s forward P/E (red) has climbed to 22.4x, reaching 2021 levels. The Mag-7 trade at 29.6x forward earnings (pink), while small caps remain much cheaper at 15–16x (blue & green). To be fair, the S&P 500 is now effectively a quality index, and the Mag-7 consistently beat earnings expectations. Still, valuations aren’t a tailwind - earnings must deliver.

Instead of focusing solely on the S&P 500, other opportunities deserve attention. One area is the Nifty 50, India’s benchmark index, which is breaking out after more than a year of consolidation (see chart below).

Why Indian equities? India grows at 6–7% annually, has the largest population in the world, and its average GDP per capita is $2,700 - far below the U.S. at $85,800 - suggests the average Indian wants to become more wealthy. India also maintains strong ties with the United States.

Narendra Modi, India’s Prime Minister, was Gujarat’s chief minister from 2001 to 2014. He turned Gujarat with a population of 74 million people into India’s economic powerhouse. Its GDP per capital of $3,947 exceeds India’s average. The state is predicted to become a $1tn economy in 2035.

Prime Minister Narendra Modi, former Chief Minister of Gujarat (2001–2014), transformed the state of 74 million into India’s economic powerhouse, with GDP per capita of $3,947 above the national average. Gujarat is projected to become a $1 trillion economy by 2035. Modi plans to extend Gujarat’s model nationally, and I think it could succeed.

The Nifty 50 trades at a P/E of 23, which seems reasonable given India’s growth trajectory. I initiated a new position in my long-term account this week and plan to scale it up in the coming weeks.

Another area of interest is the U.S. commodity sector. Bloomberg’s commodity index (BCOM) may be breaking out of its two-year consolidation (see chart below).

I know - many investors have been burned by commodities. Tech has dominated the past decade, and few expect that to change soon. Yet several catalysts suggest commodities could outperform over the next decade:

• Most major economies - the United States, Europe, China and Japan - have massively increased their fiscal stimulus outside of recessions. That should lead to increased commodity demand.

• Stressed supply chains and rising geopolitical tensions may lead governments and large corporations to strategically hoard resources, including rare earth metals.

• The AI megatrend is increasing energy demand; copper (cables), silver (solar), and natural gas consumption are likely to rise.

• U.S. shale oil production may soon peak, pushing the clearing price for new oil higher. And Goldman Sachs projects Russian oil production to fall 10% in 2026, from 9.3 to 8.4 million barrels per day (The Telegraph).

• The current LNG build-out is the largest in history, driving further natural gas demand (take a look at Citrini Research’s latest piece).

Supply is unlikely to catch up quickly. Lead times for new mines (gold, copper, nickel, lithium) started between 2020–2023 average 17.9 years - extreme, but illustrative. Demand is set to rise over the next five years, while new supply lags.

In my opinion, the Nifty 50 and the commodity sector are good diversifiers for a long-term investment in the S&P500.

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Other Views - A Quick Rundown

I am a bit short on time this weekend (I spent too much time writing the monetary policy part!). I wanted to re-iterate a few views that I have already communicated in previous articles:

• SOFR Curve - Bearish Bias

  • I don’t have strong conviction on the SOFR curve right now, but I lean short, i.e., cuts need to get priced out. There are two big questions: 1) Is inflation going to remain sticky or even re-accelerate and if yes, 2) Will the Fed care?

  • With nominal GDP growing at >5%, core PCE closer to 3% than 2%, and the unemployment rate at 4.3% close to cycle lows, there is no reason to cut interest rates right now (in my view).

  • The SOFR curve is pricing more than 2x cuts in 2025 and more than 3x cuts in 2026. That’s significantly more than the Fed communicated in the latest SEP.

  

  • We should probably expect Jerome Powell to cut LESS than priced in. And the new Fed Chair to cut MORE than priced in to please Trump. We could express this view by selling SOFR June 2026 and buying SOFR June 2027. That spread is currently pricing 16.5bps of cuts.

• Gold - Everyone is looking for the reversal day

  • It is really annoying that we do not get any CoT data right now. That would confirm whether positioning is crowded yet. My best guess is that it is.

  • I read this headline this week: “Gold has surpassed the euro to become the 2nd largest global reserve asset,” per CNBC. That feels like a bubbly headline.

  • I understand the structural investment case for Gold, but I read “debasement trade” everywhere these days. Gold feels vulnerable to a reversal.

  • Take a look at the monthly MACD. It has reached the highest level in history (!).

  

• Euro - Nice reversal candle on Friday. Needs follow-through now.

  • I laid out my short Euro thesis many times in the past months. Friday’s reversal candle in the Euro was a first sign that weakness could persist post-FOMC dollar strength. I am still in my long USD cash position.

  

• Crude oil - Everyone hates it.

  • I talked about crude oil, and massive short positioning from money managers. So far, they have been correct. But when they need to unwind their positions, it could get nasty. I am on the sidelines, but I am monitoring oil as a potential long.

P.S.: I know that I still need to change the watermarks in my charts - from RepoInsight to The Village Fund. I did not have time yet.

I’m still a repo trader by day, but most of my writing now is about macro and how I trade my own money - which makes “RepoInsights” feel too narrow.

I grew up in a small village and now work in a global financial centre. That journey inspired the new name: The Village Fund.

I’ll keep sharing thoughts, data, and trades - and hopefully spark a few good conversations along the way.

For those who followed me for repo or liquidity, don’t worry - I’ll still cover that. But in global macro, liquidity alone rarely gives you the edge you think it does.

Excited for what’s ahead. Stay tuned.

There’s a lot to unpack this week. Nothing has changed in my trading account - I’m still long U.S. dollars. That said, some very interesting opportunities are shaping up for the final quarter of the year. Let’s dive right in.

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Equities & Crypto: Leveraged Investors Got Taken Out

Friday brought a proper unwind of risk positions across the board. In total, $19.3 billion was liquidated from the crypto market, with over 1.6 million traders running their accounts to zero.

Total crypto market capitalization fell from $4.13 trillion to $3.24 trillion within hours - a 21.5% drawdown - before rebounding to around $3.7 trillion. To put that move into perspective: on October 19th, 1987, the S&P 500 recorded its largest single-day percentage loss, dropping 20.5%.

In flash crashes like this one, leveraged traders get taken out - and that’s exactly what the market needed. There was simply too much leverage in the most volatile asset class in the world. Equity markets, meanwhile, felt similarly frothy.

Early last week, several CNBC guests said things like “It’s a bubble, but it will continue,” or “I’m bearish, but I expect a year-end rally.” Comments like those suggest even the bears have climbed aboard, and that short-term positioning had become excessive.

Retail investors bought $100 billion worth of equities last month, according to Morgan Stanley - the largest one-month inflow on record. Call-minus-put demand in dollar terms also looks stretched. Take a look at the chart below.

CTAs (trend followers) and vol-targeting funds are all in. Friday’s sharp increase in realized volatility means vol-targeting funds now have to reduce their exposure. Depending on how much they already cut into the Friday close, we could see additional selling pressure from this group on Monday.

And who triggered the washout? China widened its export-control regime to cover a broad range of rare earth elements, downstream magnets, alloys, chemical mixtures, and processing/refining technologies.

Exporters must now apply for licenses, and Beijing said approvals will be denied for uses tied to defence or other “sensitive” fields, with semiconductor and advanced-tech applications under close scrutiny.

China’s controls are broader than before, and can even extend to foreign products containing Chinese inputs. Keep in mind: export controls are inflationary, often leading to bottlenecks and stockpiling.

Trump immediately reacted with new tariffs. The following two headlines dropped on Friday:

TRUMP: U.S. WILL IMPOSE 100% TARIFF ON CHINA STARTING NOV 1
TRUMP: U.S. TARIFF ACTION BASED ON CHINA’S EXPORT CONTROLS

The market consensus seems to be that there will be a “rare earth metals deal” with China in the coming weeks. Trump has no interest in the status quo - i.e., maintaining both 100% tariffs and strict Chinese export controls.

But it’s tough to say what such a deal might look like. Will it mean fewer export controls and “only” 50% tariffs? Trump will attend the APEC summit in South Korea (October 30th–November 1st), and I still expect him to meet Xi and potentially negotiate a deal there.

TRUMP: HAVEN’T CANCELED XI MEETING
TRUMP: MIGHT STILL HAVE XI MEETING

Over the next couple of weeks, uncertainty will remain high — and equities do not like uncertainty. From a seasonality standpoint, October 26th marks the Q4 low for the S&P 500, with November and December typically strong buyback execution months for U.S. corporates.

My base case is tough sledding into the end of October, followed by a constructive Trump–Xi meeting at the summit, and then bullish flows into year-end. The only thing that worries me about this view is that it feels close to consensus — and I’m willing to adjust it if the news flow changes.

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The US Dollar is Back! Still the best Fiat Currency?

I’m long equities in my long-term investment accounts, but flat in my active trading account. The only position in my EUR-denominated trading account is long U.S. dollars. The points below summarize last week’s roller coaster:

• Monday: The Euro fell more than 0.7% against the U.S. dollar after the news out of France but recovered almost all its losses by the end of the day.

• Tuesday to Thursday: It felt like the market took a step back and concluded that, among all fiat currencies, the U.S. dollar still stands out as one of the best options.

• Friday: Tariff headlines spooked markets, and the U.S. dollar weakened again.

One of the main catalysts for the weaker euro was disappointing German data. On Wednesday, Germany’s industrial production came in far below expectations: –4.3% m/m vs. –1.0% consensus. Given how heavily Germany still relies on manufacturing, this data point does not support the idea of a Eurozone growth re-acceleration.

On Thursday, Germany’s trade surplus widened to €17.2 billion in August (consensus: €15.2 billion). But the details revealed underlying weakness: exports declined 0.5% m/m (expected +0.3%), while the larger surplus was driven by an even sharper 1.3% m/m drop in imports, pointing to weak domestic demand.

France is facing political turmoil, and Germany won’t be Europe’s economic engine anytime soon. The Euribor futures spread (Dec ’25 minus Dec ’26) hit new lows on Friday, now pricing 6 bps of cuts. The entire Euribor curve shifted lower (blue: today, green: one week ago).

And yield spreads are starting to matter again - the 2-year Germany vs. 2-year U.S. yield spread still implies a weaker Euro.

I think there’s room for the Euro to reprice lower, but I also expect more volatility from here. I’m not sure how the market will digest the tariff headlines, or whether that could lead to short-term U.S. dollar weakness.

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The Gold Bubble - Time to fade it yet?

To be clear, I’m a structural gold bull - but in the short term, this move has probably gone too far. Take a look at the chart below, which shows the dollar value of calls minus puts.

The next chart shows the RSI and the distance from the 200-day moving average. Based on these two technical indicators, it looks much more likely that gold pulls back from here.

Volume in GLD has been very high over the past three trading days, yet there’s been no price progress. Could this be distribution volume?

Due to the government shutdown, we haven’t had any new Commitment of Traders (CoT) data for the past two weeks. The latest release is from September 23rd, showing that large and small speculators have been building long positions in gold.

Short gold is a tactical trade I’m considering in the coming days, though I’m not sure what a good entry looks like yet. A few scenarios I’m watching for:

• More tariffs or escalation between the U.S. and China — but gold closes down

• A liquidity-driven bull market where equities close up but gold closes down

• Some geopolitical news, yet gold still closes down

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Oil Got Crushed - Is everyone short yet?

Trump wants lower energy prices. In his view, energy costs drive a large share of overall inflation. I wouldn’t be surprised if the U.S. lifts sanctions on Iran following the Gaza ceasefire. If that move leads to peace in the Middle East and lower oil prices, Trump would likely support it.

Trump: “Iran wants to work on peace now, they’ve informed us. And they’ve acknowledged that they’re totally in favour of this deal.” (Oct 9th)

My ideal scenario was oil trading lower and sentiment turning even more bearish. Based on the latest CoT data (September 23rd), speculators are the least long oil in years.

In fact, money managers could be the most short in history right now - we’ll find out once U.S. government employees return to work and release updated data.

Earlier this week, I combined all strategy signals into one oil model. The strategy shifts between 50% short and 150% long. At the moment, the model is 50% long, supported by bullish inventory data. However, technicals and positioning data are not yet supportive of further long exposure.

Extreme bearish positioning could set up a great opportunity to get long oil later this year. I’ll continue to monitor price action and news flow closely in the weeks ahead.

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Tail risk: Global long-end yield meltdown scenario

I have strong views on Euribor and CORRA futures. Both Europe and Canada are barely growing, and the tariffs have acted as major deflationary impulses. In both cases, I think more rate cuts than currently priced in will materialise. I don’t have strong opinions on the long end of the curve at the moment. However, there is a “meltdown scenario” or tail risk that I wanted to outline.

In Japan, the ruling Liberal Democratic Party elected Sanae Takaichi as its new leader, making her likely to become the country’s first female prime minister. In France, Prime Minister Sébastien Lecornu resigned just hours after naming his cabinet, making his government the shortest-lived in modern French history. Both events are not great for global long-end bond yields.

Takaichi is a proponent of expansionary fiscal policy. That means more debt issuance despite Japan’s debt-to-gdp ratio of >250% and core inflation above target at 3.3%. The “Takaichi-trade” is long Japanese equities and short JPY. The Japanese Yen and JGBs have lost their safe haven status and Japan’s 30-year yields are at 3.21% and rising.

France’s debt-to-gdp ratio is “only” 114%, but the cabinet cannot agree on a budget. Despite Europe’s 60% debt-to-gdp limit and maximum 3% deficit rule, France wants to continue to run ~5% fiscal deficits. There is strong resistance to structural reforms, e.g., increasing the pension age.

Japan and France are the backdrop. The trigger for a long-end meltdown is the Supreme court. If the Supreme court rules that Trump imposing IEEPA-based tariffs exceeded presidential authority and the tariffs need to be paid back, a substantial share of the tariff revenue would be lost. According to JPM, without IIEPA-based tariffs, the effective tariff rate would drop from 13-14% to 5%.

I think that’s a tail risk worth monitoring. The Supreme Court will hear oral arguments on November 5th, with a decision likely in the following months. It’s difficult to trade such a scenario, but it’s worth keeping on the radar.

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I hope you had a nice weekend. It is a quiet Sunday and I am looking at my macro dashboard and models, trying to figure out where to invest my money.

Most of my net worth sits in equities, held through tax-efficient vehicles that make long-term compounding a no-brainer. Beyond that, I keep a separate trading account - the one I often write about here.

I allocate to my trading account because it is uncorrelated to equity markets. It guarantees I remain flexible when opportunities arise. If equity markets crash, I will be able to take advantage.

But let’s dive into macro views, analysis and charts. As always, if you find these write-ups helpful, please leave a like, subscribe or share the article with others. Let’s jump in.

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Equities - Constructive Flows Into Year-End

As I mentioned above, I am structurally long equities. Especially in today’s world - one that’s improving at an accelerating pace - it seems unwise not to maintain a long-term equity allocation.

Macro investors often dwell on valuations, inflation, and rising debt burdens. While those risks matter, I believe it pays to be an optimist. Consider the secular trends likely to drive global growth over the next decade:

• Artificial intelligence is accelerating innovation and democratising knowledge. Anyone with a phone can access AI tools. And the AI boom will require a massive energy build-out.

• Robotics is poised to be the next great technological wave. By 2040, it’s not far-fetched to imagine many U.S. households owning a personal robot.

• Biotech and healthcare innovation are approaching major breakthroughs, many powered by AI. Longevity itself could become a secular theme, reshaping consumption and savings behaviour.

• India is now the world’s most populous nation and is projected to grow 6–7% annually - a powerful engine for global demand.

• Emerging markets still contain billions striving for better lives. As long as capitalism and innovation persist, global living standards - and equity markets - will continue to rise.

That’s my structural view: over time, human progress drives equity appreciation. But in the short term, markets swing around that trend. Active allocation - overweighting or underweighting equities when the macro backdrop calls for it - still matters.

With that in mind, let’s look at some charts to see where we stand today.

CTAs, vol-targeting funds, and many active investors have jumped back into the market. Vol-targeting funds have increased allocations as realised volatility has come down.

Combining vol-targeting allocations with futures positioning and the NAAIM Exposure Index suggests that while there’s still room for positioning to expand, exposure has risen over the past two weeks.

Market breadth is not a problem. The cumulative AD line (NYSE) is rising to new highs in line with the S&P500.

S&P500 stocks with RSIs above 75 stand at 5% - not a warning sign yet either.

The setup into year-end is constructive. In terms of seasonality, October 26th marks the Q4 low for the S&P500. And historically, November and December are the strongest buyback execution months for U.S. corporates.

With the S&P500 up 14.4% year-to-date, consumption is likely to pick up again as households feel wealthier. The wealth effect is real - U.S. household equity exposure is up +542% since 2020 (!). To some extent, the stock market is the economy these days.

I am not long equities in my trading account, but I will leave my long-term allocations unchanged. I do not see strong enough evidence to reduce long-term allocations.

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Oil - Are the pieces falling together?

OPEC+ agreed to a modest 137k b/d output increase for November, smaller than the two- to threefold hike reportedly discussed earlier in the week. It will be interesting to see how crude oil reacts on Monday.

The limited increase may signal constraints in available spare capacity. Of the 2.2m b/d of planned output hikes between May and September, only about 60% materialized. This suggests some OPEC+ members may already be reaching the limits of what they can produce.

I am tracking three crude oil signals. COT positioning shows that money managers are very short crude oil futures (bottom line in the chart). If money managers unwind the shorts, the oil price should increase. Currently, the strategy is flat.

I am also tracking technical signals. This strategy buys pullbacks in short-term uptrends, but it is currently flat. The oil price sold off too aggressively in the past few days.

And lastly, I am tracking inventories data. When inventory draws are high relative to history, it pays off to get long oil. The strategy is currently long crude oil.

Eventually, I will combine all three strategies. Especially the money manager positioning looks very stretched. I hope it comes to an unwind in the coming weeks, and I will be able to trade it. I am still on the sidelines.

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FX & Rates - Hikes in Europe and Cuts in the United States

SOFR futures continue to price in significantly more rate cuts than indicated in the Fed’s SEP. Four weeks ago - amid concerns over labor market softness and slower growth - STIR pricing was notably dovish (yellow).

Since then, stronger-than-expected economic data, particularly on consumption, pushed the SOFR curve higher (green, one week ago). More recently, it has edged lower again (blue, today) as markets reassessed the near-term outlook.

The terminal rate has repriced lower too (see below). As I’ve noted many times in the past few months, the Fed’s projected long-term interest rate was (and still is) below the level the market is pricing as the long-term interest rate.

Now take a look at what 3-month Euribor futures are pricing for the ECB - hikes. Despite France’s political uncertainty and Germany’s stagnant economy, the market is not pricing more cuts.

I believe STIR markets will need to price in rate cuts in Europe and fewer cuts in the United States. That dynamic would support the U.S. dollar while pressuring the euro. At the last FOMC meeting (red arrow), Jerome Powell signalled multiple cuts - a theoretically bullish outcome for the euro - yet the currency reversed and closed lower.

I hope you enjoyed this update. I am still working on a few systematic strategies that I am looking to deploy in addition to my discretionary trading. But that will happen earliest in Q1-2026. My YTD trading performance is unchanged from my last article.

It’s been a while since my last article - life and work have kept me busy - but I’m back with a macro update.

Not much has changed in my trading portfolio: I’m up 6.6% YTD, with my only remaining position a long USD cash exposure in my EUR-denominated account.

I’m not fully satisfied with this performance, but I’ve managed risk well this year: a 2.85% maximum drawdown and 7.62% annualised volatility. In this headline-driven, difficult trading environment, I’ll be content if I can catch one or two strong trades before year-end.

Looking ahead, here are the macro views I’m tracking into year-end - each explained in bullet points with supporting charts below:

1. Europe needs interest rate cuts. Dec’25-Dec’26 Euribor futures look mispriced.

2. The Canadian economy is screwed. Dec’25-Dec’26 Corra futures look mispriced.

3. The strong Euro is hurting European exports. The Euro needs to depreciate.

4. Large shorts in crude oil will eventually unwind. Get ready to buy crude oil.

5. Gold is a secular long, but poised for a short-term pullback. De-risk gold.

6. Equities are still a long. Is this one of the most hated bull markets ever?

Let’s dive in…

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1. Dec’25-Dec’26 Euribor futures look mispriced.

• 3-month Euribor futures (Dec’25 - Dec’26) are currently pricing 0.5bps of hikes. I think the bar for the European Central Bank to hike interest rates is high. The bar for cuts is much lower. I can easily imagine one or two interest rate cuts if the European economy slows down next year.

• Germany - for a long time Europe’s economic engine - has stagnated since Q4-2017. Germany’s business model, i.e., import cheap energy from Russia, manufacture in Germany, and export to China, is outdated. Structural reforms are needed. But with Social Democrats (SPD) in the government, I doubt Merz (CDU) will be able to pass necessary reforms.

• Today’s ifo data - one of Germany’s most closely watched leading economic indicators - came in below expectations. The ifo indices are based on a survey of around 9,000 German firms, and a good predictor of German GDP growth. Does the last print look like a re-acceleration to you? I think “Europe euphoria” is fading.

• Headline inflation in the Eurozone has remained stable at 2.00% in the past three months. The business selling prices survey for manufacturing is not pointing to any near-term price pressures either. Euro Area core CPI has been stable at 2.3%. The ECB is not constrained by above target inflation. It has room to cut more.

• I think Euribors should be pricing cuts in 2026, not 0.5bps of hikes. My idea is to sell Euribor Dec’25 and buy Euribor Dec’26.

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2. Dec’25-Dec’26 Corra futures look mispriced.

• Corra futures are currently pricing 2bps of cuts between Dec’25 and Dec’26. I think the Bank of Canada will have to cut interest rates more aggressively next year.

• Canada’s economy is not doing well. It’s unemployment rate increased from 4.8% in July 2022 to 7.1% today.

• GDP growth has been weak in the past few quarters. On Friday, September 26th, Canada’s m/m GDP numbers will be released (expected: 0.1%).

  

• Canada’s headline inflation is back at target. The latest print came in at 1.9%. Canada’s core inflation currently sits at 2.6%, slightly above target. However, core CPI has not increased in the past three months.

• Tariffs are deflationary for Canada and inflationary for the United States. They are also growth-negative for both countries.

• Canada’s real estate market is 13% of GDP - larger than manufacturing (10.4%) or mining/oil/gas (8.2%). From 2017 to 2021, the investment in dwellings as a percentage of total gross fixed capital formation was north of 40 per cent, larger than in other G7 nations.

  

• But Canada’s real estate market is struggling. Especially the condo market in Toronto is under pressure. Condo prices have been falling since 2022.

• New condo sales have fallen in the Greater Toronto Area (GTA).

• Tariffs and AI are the perfect storm to bring the labor market to a halt. Meanwhile, Canada’s private debt to GDP ratio stands at >160%. If Canadians start to lose their jobs, they will not be able to pay their mortgage anymore. And the value of their homes decline. All this calls for more interest rate cuts.

• I think Corra futures should be pricing more cuts next year. My idea is to buy Dec’26 Corra futures and sell Dec’25 Corra futures.

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3. The Euro needs to depreciate.

• My view is that the Euro needs to depreciate. This thesis aligns with my view on interest rates. If the ECB cuts interest rates more than currently priced in, the Euro should come under pressure. Meanwhile, US equity markets are back at all-time highs, which means US consumption could re-accelerate (wealth effect). If the US economy re-accelerates and one or two Fed cuts get priced out, yield differentials should support a stronger US dollar (and weaker Euro).

  

• European politicians are also pointing out that the Euro strength is hurting exports. Last week, Italy’s Economy Minister said “(the) strong Euro is a burden on EU exports”. What about the German car industry? Or luxury goods from France?

• Based on COT data, large speculators (blue) and small speculators (yellow) are very long the Euro. I would not look at positioning data as a buy/sell signal, but as a buy/sell condition. The risk-to-reward to go long Euro is not great anymore. The trade is crowded. If positions need to unwind, we could see a larger drop.

• In the short-term, I am watching for the Euro to break below the trend line. Last Wednesday, J. Pow. signalled the Federal Reserve will cut interest rates multiple times in the coming months. The meeting was dovish. But the Euro reversed and could not break to new highs. That day - which now looks likely to turn into a double-top - I converted my EUR cash into USD cash.

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4. Get ready to buy crude oil.

• I only monitor positioning data in crude oil and wait for very crowded long/short positions. I do not analyse the physical market, OPEC trends, or other factors. At some point in the future, I will add those factors to my framework. Currently, large speculators (blue) are the least long they have been in years.

• If we take a look at the disaggregated COT data, money managers are very short crude oil futures. In fact, money managers’ short positions are >40% of the total money manager position. Historically, if you would have gone long crude oil once money manager shorts fall below 30% of total money manager positions, i.e., shorts are unwinding their position, and you would have stayed long for two months, you would have traded crude oil profitably.

• I do not have a position in crude oil futures. But I am monitoring the market. My ideal scenario would be that oil futures sell off from here, and short positions continue to build and get even more extreme. Then, I would be looking to take the opposite position.

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5. De-risk gold.

• In the long-term, I am bullish gold. But in the short-term, I think it is time to de-risk / expect a pullback. There are a few signs that positioning is getting stretched. Last Friday, on September 19th, we saw the largest Gold ETFs inflow in the last three years.

• Gold is currently trading 15.5% above its 200-day exponential moving average. Historically, these kinds of run-ups have often been followed by pullbacks or consolidations.

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6. Equities: Is this one of the most hated bull markets?

• I know valuations are high. I also know the US economy is slowing. But I still believe you need to be long US equities. Tech stocks currently perform like it’s 1999 all over again. But that’s because the US tech sector is making so much money. As long as US tech companies - and in particular Mag-7 - continue to grow, there is no bubble. If you want to short US equities, you need a very strong fundamental thesis why US earnings will disappoint. Take a look at the chart below.

• Macro investors continue to be underweight US equities. Hedge funds run their equity books almost fully hedged. My Equity Positioning Index, which combines COT futures positioning data, the NAAIM Exposure Index, and vol-targeting allocations, points to neutral equities positioning.

• If many stocks get to an overbought condition, e.g., RSI above 75, I would get cautious. But that is not the case yet. Only 4% of the stocks in the S&P500 currently have a RSI above 75.

• The Nasdaq-100 peaked at 55% above its 40-week moving average in 2000. It is currently trading 13.7% above its 40-week moving average. If you are looking for a melt-up, we are probably not even close.

• I am flat equities in my contrarian (active) trading account. But I remain long S&P500 and Nasdaq-100 in my long-term investment accounts.

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Quick update this week - work has been keeping me busy.

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Thoughts on Macro

This week’s ISM Services Prices index pointed to persistent inflationary pressures, printing 69.9 versus 66.5 expected.

Continuing claims also came in higher than expected, reinforcing the stagflationary tone.

Last week, I noted that cyclical sectors like manufacturing and construction are showing signs of strain. These areas typically account for the bulk of job losses during slowdowns. The chart below compares residential building construction (blue) with NFPs (red).

On trade policy, US tariff revenue is running at roughly $30bn/month. If Lutnick is serious about hitting $50bn/month, tariff rates will have to rise further - not a great sign. Are potential tariffs on India simply the next round in this escalation?

On the policy front, it’s looking increasingly likely that Waller is the frontrunner to replace Powell in May 2026, given his inclination to cut rates. Survey data already hints at an acceleration in credit creation lower rates would add fuel to that trend. That’s one macro positive worth flagging.

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Thoughts on Markets

Two of the most widely held views right now are:

1. The US dollar will weaken as the Fed cuts rates and Trump threatens the Fed’s independence.

2. The equity rally will carry into year-end, though August and September could bring volatility given weak seasonality.

Sometimes the consensus is right. But I can’t understand the rush into the Euro. Yes, Germany is throwing money at its economy - but that doesn’t fix structural problems like a steadily weakening industrial base. German cars could be far more competitive globally if the Euro were weaker.

A stronger Euro is deflationary for the Eurozone - imports get cheaper. Meanwhile, US tariffs are also deflationary for Europe. They’ll hurt the European economy, while US consumers end up paying more for European goods.

Eurozone inflation is sitting exactly at the ECB’s 2% target.

Euro Area GDP growth is basically flat.

Yet, the Euribor Dec ’25–Dec ’26 spread is pricing in 6bps of hikes (!).

Christine Lagarde - the ECB president giving interviews with books on Modern Monetary Theory in the background - is going to hike in this environment? See the Euribor curve below.

I doubt the ECB will hike next year. German 2-year yields are at 1.96%, while the Swiss National Bank has already cut to 0%. If the ECB follows with cuts to 1–1.5% over the next 12–18 months, German 2-year yields would likely fall, narrowing yield differentials and putting pressure on the euro.

The Fed will also cut rates, but STIR markets are already pricing five cuts over the next 13 months - despite the risk that US inflation re-accelerates.

One plausible scenario: Europe surprises to the downside, the US surprises to the upside, the ECB turns dovish, and the Fed stays hawkish or meets expectations. With speculators already long euros, that would be fertile ground for a reversal - meaning a weaker Euro.

I am still long US dollars in my EUR-denominated account. I will close the position if the high on July 28th or the below trend lines is exceeded on a closing basis.

I currently have no equity exposure in my trading account, but the “Mag-7 eats the world” and “long Nasdaq” narratives are everywhere. Meanwhile, short positioning in the Russell 2000 has been building.

My guess: long/short equity funds are crowded long in tech and short in small caps - a trade that’s worked for years. As a PM, you’re not getting fired for losing money there.

The risk? When positioning gets this one-sided, unwinds can be sharp. If Russell 2000 shorts start covering, we could see a quick pop higher.

The past three months have been frustrating - my trading account has gone sideways, and I’ve been wrong on the Euro. I’m still up 6.0% YTD, but that’s a 2.1% drawdown from the peak. For now, I’m staying on the sidelines, holding only my short Euro position (long USD cash in my EUR-denominated account).

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We're back with a longer update this week. Here's what we're covering:

1. Chart of the Week: Why going long the S&P 500 into the FOMC works

2. Macro Pulse: GDP data, the Fed, NFPs, and what’s ahead for Q3

3. Risk Assets Rundown: SOFR rally, EU exceptionalism, and seasonality

4. Trades: Positioning and thoughts on current trades

As always, if you find these write-ups helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these out regularly. Let’s jump in!

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1. Chart of the Week: Long S&P500 into the FOMC

The chart below shows what happens if you consistently buy the S&P 500 at the close the day before an FOMC meeting and sell at the close the day after. The takeaway? It doesn’t pay to sell equities ahead of the Fed.

This simple strategy would have had you invested just 3.12% of the time, yet delivered a 1.73% annualised return. That’s roughly 17.3% of the S&P 500’s total historical return, while being exposed to the market for just a tiny fraction of the year.

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2. Macro Pulse: GDP, NFPs and the FOMC

Last week brought a wave of economic data. Let’s recap where things stand - and what Q3 2025 might have in store.

Q2 real GDP came in at 3.0%, stronger than expected on the surface. But that strength partly reflects a weak Q1, which flattered the quarter-on-quarter comparison. As the chart shows, the Trump economy is still running below trend.

The headline number also masks a slowdown in the private sector. Real final sales to private domestic purchasers - a metric Powell closely watches - slowed to just 1.2%, down from over 2% in 2024. The chart below highlights the growing gap between overall GDP growth and weakening private sector demand.

Many macro commentators on X have turned bearish on the U.S. economy - and this week’s NFP report added fuel to that narrative. The headline print came in at 73k vs. 106k expected, but the real story was the substantial downward revisions to May and June, totalling a net change of -258k.

In other words, the U.S. economy added only 19k jobs in May and 14k in June. July’s report also showed job losses in cyclical sectors like residential construction and manufacturing. If we strip out the non-cyclical education and healthcare sectors, the economy actually lost jobs in July.

The unemployment rate held at 4.2%, pointing to a supply-demand mismatch. Demand for labor is softening, but so is labor supply - due in part to tighter immigration policy. Overall, the labor market is clearly slowing. That said, there may be a glimmer of hope: while July’s numbers missed expectations, they were still an improvement over the prior two months.

The ADP employment data told a similar story. It came in at 104k vs. 77k expected, suggesting a modest re-acceleration in private sector hiring in July. Markets, of course, are forward-looking discounting mechanisms. So the key question is: has the weak data already been priced in?

There’s a growing disconnect between the economy and the stock market. The three largest companies now account for 20% of the S&P500, and the top ten for 37%. Even if the broader US economy slows, the Magnificent 7 can continue to benefit from the AI-driven capex boom. Slower hiring doesn’t necessarily imply equities need to fall.

Macro investors are turning bearish - mostly due to the labor market weakness. But there are several reasons why Q3-2025 might surprise to the upside:

• Tariff clarity: Most of the major trade deals (EU, China, Japan) are now negotiated. That should remove uncertainty, support corporate investment, and help consumers adjust to the “new reality.”

• Weaker USD = Easier financial conditions: The recent decline in the US dollar has boosted competitiveness for US exports. That tailwind may show up in Q3 data.

• The wealth effect is alive and well. With equities at all-time highs and household net worth at $164 trillion (5.6x GDP), consumers feel rich - and that helps support spending.

• Lower base for comparison: Q2 (private sector) numbers were soft. That makes it easier for Q3 to show a bounce simply due to base effects. If real final sales to private domestic purchasers come in at just 2%, it would still reflect a healthy economy.

Let’s talk about the FOMC. The Fed came in hawkish. Powell emphasized the dual mandate: price stability and maximum employment. He made it clear that the Fed’s job is not to lower government interest costs or boost GDP growth.

The Fed funds target range was left unchanged at 4.25–4.5%, and the Fed views policy as "moderately restrictive." But with NFPs coming in so weak, that stance may be hard to maintain. The labor market is slowing, and a "less restrictive" position may soon be warranted.

Notably, Waller and Bowman dissented - the first time two governors have dissented since 1993. They’re now likely in the running for the next Fed Chair, and the latest jobs data may bolster their position.

And lastly, let’s take a look at inflation. According to Piper Sandler, the costs of tariffs break down as follows:

• 60% absorbed by US companies

• 20–30% passed to US consumers

• 10–15% borne by foreign exporters

The table below summarises these estimates.

At some point, firms may stop eating the costs. This week’s data showed that core PCE inflation accelerated to 2.8% (vs. 2.7% expected). That means the Fed has made no progress on inflation since the start of 2024. If companies begin to pass through more of the tariff burden to consumers, the inflation picture could worsen - and the path to rate cuts becomes even more complicated.

And tariffs are starting to show up in the inflation data - durable goods prices are rising again as the below chart shows.

We’ve got a lot of economic data this week. Let’s summarise:

• The US economy is still growing at ~2%, but it is slowing. The “Trump economy” is running below trend.

• The US labor market is near maximum employment, but it is slowing (fast). The demand for labor and the supply of labor have fallen.

• The Fed’s tone was more hawkish than expected, yet the recent NFP report suggests a rate cut may come as soon as September.

• Core PCE inflation is holding steady at 2.8%, and tariffs are starting to make their presence felt in the inflation data.

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3. Risk Assets Rundown: SOFR Rally, EU Exceptionalism, and Weak Equity Seasonality

STIR markets have repriced sharply following the NFP report. The base case now includes three rate cuts in 2025, with markets pricing roughly an 80% chance of a September cut, a 58% chance of another in October, and a 46% probability of a third in December.

SOFR futures now price in six rate cuts through December 2026, implying a terminal rate around 3.05%. The market narrative has shifted from a “hawkish Fed” stance to one focused on “weak economic data” justifying insurance cuts.

I don’t have a strong conviction on current pricing. Two rate cuts in 2025 seem realistic, while three cuts might be ambitious if core PCE accelerates and unemployment stays around 4.2%. If Q3 economic data surprises on the upside, fading the recent rally in SOFR December 2025 futures could be a good trade. For now, though, I remain cautious.

The US 10-year yield dropped sharply on Friday to 4.22%. A useful mental model is that the 10-year yield should roughly track nominal GDP growth. With real GDP around 2% and inflation near 2.5%, the current yield appears close to fair value.

More Fed cuts usually mean a weaker US dollar, right? I’m not so sure. The “Sell USD” narrative that gained traction recently rested on several key points - many of which no longer hold.

• The idea that AI capex had peaked was disproven by strong earnings from Microsoft and Meta. Meta alone expects capex of $66-72 billion this year.

• Section 899, which would have introduced new taxes on foreign investors in Treasuries, was dropped from the “One Big, Beautiful Bill.”

• The reported fiscal record at Mar-a-Lago turned out to be incorrect.

• The Bank of Japan has shifted back to a more dovish stance, undermining the “long yen” leg of the trade.

• “European exceptionalism” has likely peaked - the DAX is where it was three months ago.

The Euro had a strong day on Friday after the NFPs, but I believe its peak was earlier in the week. The gap between the Euro and the DE2Y-US2Y yield differentials (see chart below) looks set to narrow in the coming weeks.

CoT positioning shows that both large speculators (blue) and small speculators (yellow) have built significant long positions in the Euro. While positioning isn’t a timing tool and I could still be wrong, the risk-reward looks more favourable for shorting the Euro than “jumping on the trend (late)”.

I have less conviction on other currencies because their positioning isn’t as one-sided as it is with the Euro. For instance, the Swiss Franc appears overvalued based on yield differentials, but positioning isn’t as stretched. The British Pound, Canadian dollar, Australian dollar, and New Zealand dollar don’t look overvalued based on yield differentials either.

Turning to equities, the Mag-7 companies continue to post impressive earnings. Microsoft, the world’s second-largest company, grew revenues by 18% last quarter. Its cloud computing segment, Azure, generated $75 billion over the past twelve months.

Given that the largest 10 companies, mostly tech-focused except for Berkshire Hathaway, make up nearly 40% of the S&P 500, it’s tough to make a fundamental case for shorting the index. Friday’s sell-off felt healthy, as many indicators - like the Fear & Greed index - were signalling overbought conditions.

Positioning across a broad range of measures - futures positioning, volatility-targeting equity allocations, and the NAAIM survey - remains neutral.

If Friday’s sell-off extends into next week, the rising number of S&P 500 stocks with RSIs below 25 could signal a buying opportunity.

In terms of seasonality, the outlook for equities isn’t very encouraging. Between 1988 and 2023, the S&P 500 has declined on average by 0.51% in August and 0.78% in September. This combination of weak seasonality and softer macro conditions suggests we may see choppy, sideways action in the weeks ahead. However, if equities sell off further - say another ~5% - it could present a solid buying opportunity.

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4. Trades

This week was an emotional roller coaster. On Monday, I put on two positions:

• I bought Russell 2000 futures. Given that speculators are heavily short the Russell 2000, I expected a potential short squeeze. That bet didn’t pay off - I lost about 0.75% on the trade.

• I converted EUR to USD and caught roughly half of the Euro’s sharp decline on Monday. The EU trade deal announced last Sunday gave the EU a tariff rate of 15% instead of 30%, but the Euro still sold off sharply. Recently, EU assets traded as if “European exceptionalism” was alive and well, but the deal underlines the economic reality: the EU is falling behind. Monday’s price action felt like a major shift in sentiment. I’m still long USD in my EUR-denominated trading account.

Putting on these trades wasn’t easy, and while I initially made some gains - the trading account rose from 6.6% to 8.0% YTD - Friday’s reversal hit hard. I was stopped out of the Russell 2000, and the Euro rallied, bringing me back down to 6.2%. I’ll continue holding my long USD position but don’t have conviction for new trades at the moment.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

Just a quick update again this week - work and coding projects are keeping me busy. Hopefully I’ll be able to share more about the coding side in the coming weeks.

The good news: I’ve backtested several strategies, and I’m happy with the results. Now comes the tricky part - figuring out how to run these strategies in the cloud. Easier said than done.

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The Vision: A Three-Layer Portfolio

My goal is to run a portfolio with three distinct components:

1. Passive Beta
A globally diversified, low-maintenance portfolio across cash, equities, bonds, and commodities. The idea is to leave this untouched - maybe a quarterly rebalance - and let it harvest long-term risk premia.

One example allocation looks like this: 40% USD cash, 10% US equities, 10% rest-of-world equities, 7.5% US nominal bonds, 5% US inflation-linked bonds, 7.5% RoW nominal bonds, 5% RoW linkers, 10% gold, and 5% other commodities.

Backtested since 2018, this strategy delivered ~4% annual returns with 6% volatility and a max drawdown of 13%. Not wildly exciting, but steady - and keep in mind that 2022 was a historically bad year for both stocks and bonds. The key is stacking uncorrelated return streams.

The below chart shows how each asset allocation contributed to the overall risk / volatility of the beta portfolio.

2. Discretionary Contrarian Futures Trading
This is the core of what I’m doing right now. I focus on contrarian futures trades, guided primarily by positioning data. The strategy is designed to generate uncorrelated alpha with low drawdowns (max ~10%) and little correlation to the S&P 500 or a traditional 60/40 portfolio. I’m targeting 10% annual returns with a margin-to-equity ratio of around 10–20%, which allows for meaningful convexity while keeping risk in check.

3. Systematic Strategies
The third leg is systematic: I’m building models to capture flow-driven seasonal patterns across equities, bonds, commodities, and currencies. So far, my backtests are encouraging - Sharpe ratios around 1.3 and return-to-drawdown ratios near 1. That means a strategy with 10% returns tends to experience 10% drawdowns, which I find acceptable given the low correlation to the rest of the portfolio. I’m still refining these models, but the goal is to add a steady, scalable return stream with minimal discretionary involvement.

I’m still working through how each strategy fits together at the portfolio level - especially once margin requirements come into play. Most likely, the passive beta component will need to hold a 40–50% cash allocation to ensure there’s enough margin available and to keep overall portfolio leverage in check.

I’ll keep you posted as I make more progress. This is my main ‘big’ project right now, which means I have less time for deep macro thinking - but stick with me, I’ll get back to that soon!

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Portfolio Update

Trading is hard - and the past two weeks were a mental grind. I felt like my views were broadly right (e.g., on STIR or Ethereum), but I didn’t capitalize on them. Either because:

1. I’m restricted in what I can trade,

2. the ideas didn’t fit my contrarian futures framework, or

3. I just wasn’t “100% on it.”

Instead, I tried going long USD vs EUR (again) - and got stopped out. The trading account is still up 6.6% YTD, but in hindsight, I should’ve stayed on the sidelines. I was probably frustrated about missing the JPY move, and being overloaded with work didn’t help either.

Still, the past two weeks reminded me of an important truth: consistency and focus are everything. Great outcomes don’t happen when your attention is scattered. Two difficult weeks mean nothing over a multi-year horizon. The best advice I can give - and follow - is to find what matters most, and then pursue it relentlessly for years.

Here are a few quick thoughts from this weekend:

• Russell 2000: Positioning looks very bearish, which could unwind soon. That said, chasing laggards like the Russell feels risky - it has clearly underperformed the Nasdaq and S&P500. I’ll keep an eye out for an entry (likely in small size) to get equity exposure.

• EUR positioning: Still building. I’m staying patient and on the sidelines for now.

• Ethereum: Approaching $4,000, which will likely act as resistance (more thoughts below)

Next week is huge - we have the QRA, FOMC, NFP, ISM Manufacturing, US GDP, plus BoJ and BoC pressers. There’s no reason to take big risk ahead of that. By next weekend, we’ll have a much clearer picture.

Now, a few thoughts on STIR and Ethereum…

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STIR Pricing - The belly versus the long-end of the SOFR curve

My STIR view from early July is playing out. On July 6th, I wrote:

“If growth surprises to the upside in H2 (thanks to easier FCIs), short-term rates (STIR) could reprice higher. For example, SOFR June 2026 is pricing in 4 of 6 total cuts during Powell’s remaining term (3.36%). If Powell simply stays on hold for a bit longer, those contracts need to reprice lower. On the other hand, SOFR December 2028 still implies a terminal rate of 3.53%, well above the Fed’s long-run estimate of 3.0%.”

Since then, the curve has moved in line with that view. The SOFR Dec 2028 minus Jun 2026 spread has repriced from -16.5bps (on July 6th) to -7bps today. Most of that move came from the June 2026 contract pricing out cuts - exactly the scenario I outlined.

While the belly of the SOFR curve continues to price in more rate cuts than the Fed’s own projections (1), the long end is doing the opposite - pricing in fewer cuts than the Fed’s long-run estimate (2). That disconnect suggests there’s still room for further repricing in the Dec 2028 vs. Jun 2026 spread.

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Ethereum - Wall Street’s Blockchain?

My Ethereum view played out well - we’re now approaching the $4,000 level, which likely marks significant resistance (see chart below). Still, I don’t think the story is over. Dips are probably long-term buying opportunities. Here’s why.

Wall Street is quietly building crypto infrastructure - and Ethereum is becoming the preferred blockchain. For TradFi firms, Ethereum makes sense: it has the largest developer community, extensive tooling, and the broadest ecosystem beyond Bitcoin.

With the GENIUS Act now signed into law, I expect more firms to launch stablecoins. The stablecoin market is already >$260bn - and particularly useful for non-US residents seeking dollar exposure.

In many emerging markets, where currencies are unstable or banking access is limited, holding USD via stablecoins makes sense - even without earning interest.

For issuers like Circle, stablecoins are a high-margin business. They collateralise user deposits with US Treasuries but don’t pass on the interest - in fact, the GENIUS Act prohibits it. That yield (~3.5%) becomes revenue.

If USDC grows to $100bn in market cap (from ~$64bn today) and yields remain at ~3.5%, Circle earns $3.5bn in yield annually. Much of this is shared with platforms like Coinbase and Binance to incentivise adoption. For example, Coinbase receives 50% of the residual revenue from USDC reserves.

Stablecoins are likely a winner-takes-most (or all) market. Two or three could dominate. There's little reason for 50 USD stablecoins to coexist. We’re in the middle of a land grab to secure market share - and distribution matters.

But Ethereum’s role goes beyond stablecoins. Take JP Morgan, which is launching its own deposit token, JPMD, on Coinbase’s Base, a Layer 2 built on Ethereum. JPMD is tailored for institutional clients - enabling cheaper cross-border transactions — and integrates with existing banking infrastructure. It will also pay interest.

If the largest bank in the world is building on Ethereum, will others follow? Probably. I’m not a crypto expert, but the investment case makes sense. A sharp pullback could offer a good opportunity.

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I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

It’s been another busy week at work, so this update will be a bit shorter than usual.

As always, if you find these write-ups helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these out regularly. Let’s jump in!

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Portfolio Changes

• S&P500: I closed my long S&P 500 futures position on Tuesday. That day, we got two key headlines: 1) Core CPI came in below expectations, and 2) Nvidia received approval to sell H20 chips to China. Both were bullish signals, yet equities didn’t respond. In fact, the Nasdaq closed lower that day.

• USD: I converted most of my EUR cash into USD on Tuesday. Honestly, I’m a bit frustrated I didn’t make the move earlier. Two weeks ago, Trump rolled out a wave of new tariff announcements - and unlike in April, the US dollar strengthened instead of selling off. That felt like a meaningful shift in market tone.

Let’s take a look at STIR markets. In Europe, short-term interest rate pricing has become particularly interesting. The bond market is now pricing in just one more cut between now and March 2026 - after that, the ECB is expected to hike rates again. The 3-month Euribor curve (see below) tells the story.

The chart below shows the spread between Euribor Dec '25 and Dec '26. Right now, the curve is pricing in 9bps of hikes in 2026. I’m skeptical those hikes will actually materialize. Even if euro area growth rebounds to 1.5%, it’s hard to see the ECB turning hawkish again.

There’s little evidence of structural inflation in Europe. The business selling prices survey remains subdued, and June’s Euro Area inflation came in at 2.0%. With growth still sluggish and inflation well-anchored, rate hikes in 2026 seem highly unlikely.

Turning to the U.S.: Trump is turning up the heat on Powell. Markets are pricing three rate cuts during Powell’s remaining term. But what’s more striking is that STIR pricing implies the next Fed chair won’t cut rates for several months after taking over. That seems unrealistic, especially under a Trump administration pushing aggressively for easier policy.

Only 7bps of cuts are currently priced between September 2026 and March 2027.
If Powell stays cautious and delivers just 2–3 cuts during the remainder of his term, but Trump continues pressuring the next Fed chair, it’s likely we’ll see more easing priced in for that period.

If the Euribor curve prices out hikes and Powell stays on hold longer than expected, the yield differential should shift in favor of the U.S. dollar. Since Liberation Day in April, the 2-year Germany vs. 2-year U.S. yield spread has decoupled from EURUSD.

CoT data offers a decent snapshot of how stretched currency positioning is — especially among trend-followers. Large speculators (blue) and small speculators (yellow) have built sizable long positions in the euro. Yet over the past two weeks, the euro has traded notably weaker - a sign that positioning could now be a headwind.

Equities might chop sideways through the summer. The number of S&P 500 stocks with RSI readings above 75 has climbed meaningfully. That doesn’t necessarily mean a correction is coming, but it does suggest increased volatility is likely in the near term.

Tactical equity positioning looks neutral. Across futures markets, vol-targeting strategies, and active managers, positioning doesn’t look stretched in either direction. I’m still long equities in my long-term investment accounts, but I’ve reduced risk in the trading book by closing my S&P 500 futures position.

Ethereum thesis pays off. My Ethereum idea gained +45% in just two weeks. On July 18th, Trump signed the GENIUS act, which establishes a regulatory framework for stablecoins, into law. Since most stablecoins run on the Ethereum blockchain, this development could boost Ethereum’s on-chain activity and value.

My trading portfolio is up 7.5% year-to-date, with notably lower drawdowns and volatility compared to the S&P 500. That return was achieved despite some constraints - for example, I didn’t take the short JPY trade, which could have added another 3–4% YTD.

I’m exclusively trading futures, maintaining a margin-to-equity ratio of roughly 10–20%. This means you could combine a well-diversified beta portfolio with a sufficient cash buffer and layer this alpha strategy on top.

Here’s an example beta portfolio allocation: 40% USD cash, 10% S&P 500, 10% rest-of-world equities, 7.5% US nominal bonds, 5% US inflation-linked bonds, 7.5% rest-of-world nominal bonds, 5% rest-of-world inflation-linked bonds, 10% gold, and 5% other commodities. Since August 2018, it has returned about 4% per annum with 6% volatility and a maximum drawdown of 13%.

If you can build a passive beta portfolio delivering 4–5% annual returns and successfully overlay alpha strategies targeting around 10% per year, the combined portfolio could achieve an attractive return profile — think 12–15% returns with about 10% volatility and max drawdowns in the 10–15% range. But that’s just the beginning…

My ideal portfolio consists of three components: 1) passive beta, 2) discretionary alpha, and 3) systematic strategies. Right now, I’m backtesting a range of systematic approaches across various asset classes. The chart below shows the cumulative performance of all the systematic strategies I’ve tested so far.

I wouldn’t run the systematic strategies at full size, but if I can add around 20% of the return—roughly 3–4% annually—with low volatility, limited drawdowns, and low correlation to the existing beta and alpha positions, the overall portfolio return profile becomes very compelling.

There are still a few details to work out, like optimal sizing, margin requirements, and transaction costs. Ultimately, my goal is to build a diversified portfolio combining passive beta, discretionary contrarian alpha, and systematic strategies across multiple asset classes.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

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Just a quick update this week - work has me swamped, so this one will be a bit shorter than usual.

As always, if you find these write-ups helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these out regularly. Let’s jump in!

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Tariff Update: Trump Goes Big

• Trump announced sweeping new tariffs: 30% on the EU and Mexico, 35% on Canada, 25% on Japan, 50% on Brazil, and 50% on copper.

• Brazil is a particularly interesting case - back on Liberation Day, it was facing just a 10% tariff, and the U.S. actually runs a trade surplus with them. Three months later, Trump has ramped that up fivefold to 50%. His trade policy remains highly impulsive.

• What’s more surprising is the market’s reaction. In April, this kind of announcement would have sparked a sharp equity selloff. Last week, the S&P500 barely moved (-0.3%).

• I think the market realised that tariffs will hit corporate earnings by “only” 0.5-1%. That is very likely already baked in. Bearish headlines, bullish price action.

For Q2 2025, analysts are expecting just 4% EPS growth. Q3 and Q4 estimates stand at 7% and 6%, respectively. That’s a low bar - and in my view, one that many companies should have no trouble clearing.

The S&P 500 was approaching overbought territory, but last week’s sideways price action helped cool things off. The number of S&P 500 stocks with an RSI above 75 has pulled back, which is a healthy sign for the market.

Markets are now pricing in a scenario where inflation re-accelerates and the Federal Reserve resists cutting rates as aggressively as Trump would prefer. The SOFR curve sold off in the last two weeks, with December 2026 futures moving from 3.07% to 3.24% - a 17bps repricing.

U.S. 5-year yields are beginning to price in a re-acceleration of inflation over the coming months. All eyes are now on Tuesday’s CPI report, where the consensus expects a 0.3% month-over-month print for both the headline and core readings.

The U.S. dollar’s price action last week was telling. Back in April, when Trump first announced tariffs, the dollar sold off sharply. This time, despite another round of tariff headlines, the dollar strengthened against most major currencies. Once again: bearish news, bullish price action?

The secular U.S. dollar bear case has become almost consensus among macro investors. But I think H2 2025 could offer a compelling opportunity to get long the dollar. The Euro, British pound, and Swiss franc are all showing signs of fatigue - and the Japanese Yen is breaking lower as well.

The crypto market is heating up. Bitcoin just hit a new all-time high at $118k, and Ethereum is starting to show strength as well. I continue to believe that stablecoin regulation could be a powerful catalyst for the Ethereum ecosystem - driving both on-chain activity and gas fees higher.

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Trading thoughts:

• I remain long S&P500 futures - that is still my only position in the trading account. The trading account is up 7.8% YTD.

• I am looking to get long US dollars, either vs EUR, CHF or GBP. Tuesday’s CPI release could be the catalyst to initiate a position.

• Palladium positioning is getting very stretched and the market is overbought. This market is worth monitoring as a potential short.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

Today’s piece will focus on:

1. Chart of the Week: Gold Has Outperformed Every Major Risk Asset

2. Macro Pulse: Softening Labor Data vs. Rebound in H2 GDP Growth

3. Risk Assets Rundown: SOFR Curve, Equity Positioning, and Stablecoins

4. New ideas

As always, if you find these write-ups helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these out regularly. Let’s jump in!

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1. Chart of the Week: Gold Has Outperformed Every Major Risk Asset

Since August 2018, gold has delivered the strongest risk-adjusted returns of any major asset class. Assuming 10% annualised volatility, it has outperformed U.S. equities, cash, and other risk assets. Gold is often viewed as a hedge against monetary debasement, but it also plays a valuable role as a portfolio diversifier. Its performance speaks to both qualities.

Ray Dalio recently summarised the investment case succinctly:

“When countries have too much debt, lowering interest rates and devaluing the currency that the debt is denominated in is the preferred path government policymakers are most likely to take, so it pays to bet on it happening.”

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2. Macro Pulse: Softening Labor Data vs. Rebound in H2 GDP Growth

The macro picture hasn’t changed much overall, but recent data shows a growing divergence between labor market weakness and expectations for stronger GDP growth in the second half of the year.

Labor market data continues to soften. The ISM employment and new orders components came in below expectations, while "prices paid" remained elevated - not the mix you want to see. The headline Non-Farm Payrolls (NFP) print surprised to the upside at +147k (vs. 106k expected), but beneath the surface, it was a weaker report:

• Private payrolls came in at +74k (vs. 100k expected) and

• Wednesday’s ADP showed -33k jobs, pointing to private-sector contraction

While the ADP report is often dismissed in favour of NFPs, both are now pointing in the same direction: slowing private-sector job growth.

Bloomberg economist Anna Wong highlighted on X that the Birth-Death model adjustment may be overstating NFPs by 80–100k, and with 70k of the 147k jobs coming from the public sector, adjusted private payrolls may have actually declined - which aligns with the ADP report.

The drivers of labor market weakness aren’t entirely clear. It could be a mix of:

• Rising adoption of AI, putting white-collar jobs at risk

• Tariff uncertainty, weighing on hiring plans

• Higher real interest rates, tightening financial conditions

As job growth slows, wages tend to follow. And real disposable income is only growing at 1.7% year-on-year - among the weakest rates in recent memory.

Meanwhile, the economy continues to grow - for now. The Atlanta Fed’s GDPNow model forecasts 2.6% Q2 growth, supported in part by a drop in imports, which mechanically boosts GDP. A similar rebound in H2 looks plausible, but the ongoing softness in labor and consumer data is a growing risk to that outlook.

Fiscal policy is also in focus. The “One Big Beautiful Bill” passed on Friday should help support growth in 2025–2026 through wider deficits, though markets may have already priced in much of that stimulus.

One final tailwind: rising oil output. OPEC+ is increasing production by 550k bpd, which exceeded expectations and could keep downward pressure on energy prices - helping soften inflation and support consumer spending.

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3. Risk Assets Rundown: SOFR Curve, Equity Positioning, and Stablecoins

Let’s start with the front-end. Two key questions on my mind when looking at the SOFR curve:

1. Why is the market pricing multiple cuts under Powell - but none after?

2. Is terminal rate pricing too low… or too high?

On X this week, I summed up a simple thesis: Trump is scary, and no one on the Fed wants to be called “stupid” in public. But if you’re sitting on the FOMC, is that the legacy you want - caving to political pressure and risking an inflation resurgence?

In reality, Fed officials will likely try to walk a tightrope:

• Don’t provoke Trump

• Appear in control of the Fed

• Avoid letting inflation re-accelerate to 3–5%

With Trump increasing pressure, we’ll likely see a few cuts in the coming months. But will the Fed really cut by as much as is currently priced in - especially if tariffs spark a re-acceleration in inflation?

After Friday’s jobs report, the front-end sold off. Markets now price 2 cuts in 2025 and 3 in 2026.

But let’s be clear: Core PCE is still running at 2.7%, and the U.S. dollar is down 11% YTD, implying a major easing of financial conditions. If tariffs are reintroduced, inflation could easily re-accelerate from here.

If that happens, 125bps of cuts over 18 months becomes a stretch. Yes, the ECB managed to cut by 200bps between May 2024 and June 2025 - but Eurozone inflation was at 2.6% (now: 2.0%) and growth much weaker. The U.S. macro backdrop is fundamentally stronger.

If growth surprises to the upside in H2 (thanks to easier FCIs), short-term rates (STIR) could reprice higher. For example, SOFR June 2026 is pricing in 4 of 6 total cuts during Powell’s remaining term (3.36%). If Powell simply stays on hold for a bit longer, those contracts need to reprice lower.

On the other hand, SOFR December 2028 still implies a terminal rate of 3.53%, well above the Fed’s long-run estimate of 3.0%. That’s a potential disconnect.

Even after the SOFR curve selling off last week (blue = today, green = one week ago), the trade could be to sell June 2026, and buy December 2028.

The below chart shows the spread (currently -16.5bps) of buying SOFR December 2028 and selling SOFR June 2026.

The main risk to this trade is Trump. If Trump pressures Powell into cutting rates aggressively, then we could see 125bps of cuts materialise within 18 months. That is what makes this trade difficult - we have to assign subjective probabilities to this outcome.

On 10Y–30Y Yields: I don’t have a strong conviction here. With inflation and growth likely re-accelerating in H2, you’d need a convincing slowdown in consumer spending to be bullish duration. That said, term premium and real yields remain elevated, so if we do get a disinflationary downturn, there’s asymmetric upside.

US 10-year yields remain in a trading range - I don’t feel like I have any edge here.

Let’s focus on equities. Equities have several tailwinds, including:

1) Impending interest rate cuts

2) A weaker USD, which contributes to easing FCIs

3) Continued strength in the AI boom

4) Positioning that is not yet stretched

Overall, I remain optimistic about equities over the next 12 months. However, in the near term, a pullback is possible - especially if Trump jacks up tariffs again (July 9th!). If that pullback materialises and macro sentiment turns bearish (again), with positioning data reflecting that shift, it could present a good buying opportunity.

In the short-term, there are warnings signs. One development that is worrying me is the increasing number of S&P 500 stocks with RSIs above 75.

The NAAIM Exposure index printed the highest it has been in months too.

The Fear & Greed index is starting to look quite elevated.

But zoom out, and my Equity Positioning Index - which aggregates futures positioning in equity indices, NAAIM, and vol-targeting fund allocations - still suggests positioning has room to expand. This stat support the bullish outlook over a 12-month time horizon.

Tom Lee noted in this interview on YouTube that 65% of all equity fund managers voted for Biden, i.e., are Democrats, whereas the majority of fixed income managers voted Republican. I think that could partially explain why institutional equity investors remain underinvested post Liberation Day crash.

Many survey shows that Democrats expect higher inflation and lower growth than Republicans. So was the majority of equity fund managers too cautious in April? And one more thing: isn’t it funny how markets are messing with both groups? Republican FI managers that expect yields to blow out also are not getting what they want.

If Trump reinstates tariffs on most countries, markets could sell off. I doubt it would match the magnitude of the April decline, but it could still trigger a 5% correction. I am still long S&P500 futures. I have not yet decided whether I will close them out before July 9th.

Two quick comments on the US dollar and precious metals. Positioning in the US dollar continues to be short. But positioning can get more extreme - it is not a timing instrument. After Friday’s NFP report, the US dollar traded weak. I remain patient and have not yet opened a long US dollar position.

I also have not been active in precious metals, e.g., silver or platinum. I continue to monitor positioning data and price action. Ideally, positioning becomes more crowded long, and then we see weaker price action, e.g., the US dollar selling off but metals sell off in lockstep.

With the S&P500 trading higher last week, the trading account is up 8% year-to-date.

I typically do not talk about crypto, but I wanted to share one thought on Ethereum. The U.S. government wants more foreign demand for Treasuries. Stablecoins are one way to do that, since ~80% of usage is outside the United States.

Private firms are also incentivised to launch stablecoins because holders don’t receive interest - meaning issuing stablecoins is a high-margin business model.

Most stablecoins still run on Ethereum, so if regulation is passed and usage increases, Ethereum might benefit via higher on-chain activity and gas fees. Was the latest underperformance just a massive shakeout?

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4. New Ideas

I’m currently working on several side projects behind the scenes. I’ve been backtesting quantitative models for alpha generation and experimenting with different approaches to beta portfolio construction. The broader vision is to “build a multi-strat” - obviously on a much smaller scale, but the concept applies.

The goal is to construct a well-diversified portfolio that passively harvests beta - i.e., risk premia over cash - and overlay systematic and discretionary uncorrelated alpha strategies to improve risk-adjusted returns. I’ll keep you posted as things develop.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

This week’s article will be a bit shorter than usual - I’m away on a weekend trip and couldn’t carve out time for the full five-section deep dive. Today’s piece will focus on:

• Chart of the Week

• Fixed Income: Trump is bullying the Federal Reserve

• Equities: What will happen on July 9th?

• FX: The US dollar cannot catch a bid

• Where is the next trade?

As always, if you find these write-ups helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these out regularly. Let’s jump in!

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Chart of the Week: Back To Neutral Equity Positioning

I calculated an “Equity Positioning Index”, which combines equity futures positioning, the NAAIM index, and vol-targeting equity allocations. Based on the three factors, equity positioning is “neutral”. But flows in the near-term, such as buying from underperforming active managers that chase the benchmark higher, buybacks and buying from retail, will likely continue to be supportive for equities. I remain long S&P500 futures.

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Fixed Income: Trump Is Bullying the Federal Reserve

The big story in markets is Trump bullying the Federal Reserve into cutting rates. Trump already said that he has 3-4 candidates in mind to become Jerome Powell’s successor. Interviews have begun. And Trump is not hiding what he is looking for in candidates: "I'm going to put somebody that wants to cut rates.”

Trump does not seem to realise that he is playing with fire. The United States is the most financialized economy in the world. The US government debt market is the most liquid bond market in the world. The U.S. cannot behave like an emerging market - where central banks serve political leaders rather than operate independently.

There is a reason why central banks are independent: to avoid conflicts of interest. If the government can set interest rates at 0% to fund excessive fiscal spending, the government would be essentially buying votes without having to deal with the consequences, such as 1) inflation, 2) worse credit ratings or 3) higher long-term interest rates.

Trump believes rates should be closer to 1%, and with the Fed Chair position up for grabs, some FOMC members may already be angling for the job. Don’t be surprised if a few of them start sounding more dovish in public - it could be less about the data and more about their career prospects. Say tariffs aren’t inflationary, downplay upside risks - and maybe, you’re in line for the top job.

As a result, the internal dynamics of the FOMC could shift. Powell may lose influence long before he formally exits. And whoever is perceived as most likely to succeed him may see their views gain weight in the near term.

The Federal Reserve losing its independence speaks for STIR to reprice lower. The terminal rate (SOFR December 2028) is still pricing 3.45% - much higher than Trump’s preferred 1%. Last week’s idea of betting on the terminal rate moving lower by getting long SOFR December 2028 futures is off to a great start.

Trump also made a very interesting comment about the Treasury’s issuance schedule. He said that he instructed the Treasury not to issue debt with a maturity above 9 months. I am not sure this claim is trustworthy because it would result in the cancellation of 3.3tn USD in coupon auctions. Year-to-date, the US Treasury’s net issuance of bills is -162bn USD and of coupons 760bn USD.

If the Treasury pivots toward issuing mostly bills, the effects would resemble quantitative easing The buyer of long-dated US debt (“coupons”) has to buy something else, e.g., IG credit. The seller of IG credit might now buy HY credit. The seller of HY credit might now buy equities, etc. Everyone will move further out the risk curve.

If the Treasury decides to issue more bills and less coupons, financial conditions would ease. Coupon issuance means the private sector has to absorb duration - or “interest rate risk”. If there is less duration to absorb, the demand or availability for leverage increases. That means risk assets increase in price, which ultimately results in goods inflation.

Next week, we will find out whether Trump was serious about his statement regarding the Treasury’s issuance calendar. If the Treasury reduces coupon auction sizes, it will be interesting to see how the bond market reacts. My best guess is that 30y yields would rise because growth & inflation reprice higher. That would be the ultimate catalyst for yield curve steepening.

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Equities: What Will Happen on July 9th?

Let’s focus on equities. There are a few factors that are making me (more) nervous:

1. The July 9th tariff deadline

2. Trump challenging the Federal Reserve’s independence

3. High(er) equity valuations

4. Back to neutral equity positioning

Despite the above, equities have traded remarkably well last week. Earnings expectations have risen to new highs and the S&P500 reached a new all-time high this week (see below). Maybe it is a good sign that equities continue to trade so well despite all the bearish headlines.

There are also several factors that continue to be supportive for equities:

1. The OBBB advanced in the Senate. Increased fiscal spending is bullish risk assets.

2. Trump is bullying the Federal Reserve into interest rate cuts.

3. AI is booming - NVIDIA has reached a new all-time high this week.

4. The SLR reform is coming, which will be positive risk assets.

5. Flows will likely remain supportive, in particular from retail and buybacks.

6. The European/German economy could re-accelerate in 2026 due to fiscal stimulus.

I remain long S&P500 futures. But in contrast to my long-term investment account, in which I am long equities at all times, I might cut my exposure sooner than expected.

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FX: The US Dollar Cannot Catch A Bid

The “US dollar reversal trade” is frustrating. I converted the US dollars in my EUR-denominated trading account back into Euros on Wednesday. It’s annoying that I am cannot buy USD vs JPY - that was my main trade idea in the last two months. Currently, my only options are to convert EUR cash into USD cash or buy the US dollar index. So far, getting long USD cash has lost me roughly 1.5% (YTD: 7.3%).

The best catalyst to get long US dollars would be weak economic data such as a recessionary labor market report, but the US dollar closes up on the day. But as long as we don’t get such price action, I will remain on the sidelines. US dollar positioning remains crowded short - not only based on the CoT data, but also according to BofA’s fund manager survey.

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Where Is the Next Trade?

In fixed income, my main view is that terminal rate pricing will move lower as Trump is bullying the Federal Reserve into cutting rates while the US economy is slowing down. One way to play this is to get long SOFR Dec 2028 futures.

In the currency space, I am looking to get long USD versus either CAD or CHF. The Canadian economy is doing poorly and the SNB has already lowered rates to 0%. Positioning is much more long CAD and CHF than it was just a few weeks ago.

I am also looking at silver and platinum. Both metals have rallied a lot in the past few weeks and positioning is getting crowded long. Short silver or platinum could be a good hedge for long S&P500 contracts. The 30-day correlation between the S&P500 and silver is 0.7 and between the S&P500 and platinum is 0.88.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

This article is structured in five key sections:

1. Chart of the Week

2. Macro Pulse: What is happening in the economy?

3. Risk Assets Rundown: Market views and trade ideas

4. Positioning Update

5. Closing Thoughts / Outlook

These write-ups take a lot of time and effort to put together, so if you find them helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these pieces out regularly. With that said, let’s dive right in!

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1. Chart of the Week: SOFR Pricing After the FOMC

This week’s Chart of the Week belongs to the SOFR curve, which offers a concise snapshot of market expectations following the latest FOMC meeting. Here's how we can break it down:

1. Rectangle: The very front-end of the curve - up to June 2026 - remains virtually unchanged from a week ago. It continues to price in more rate cuts than the FOMC communicated, suggesting the market isn’t fully buying into the Fed’s forward guidance.

2. Rectangle: Powell’s term as Fed Chair ends on May 15, 2026. Interestingly, the SOFR curve reflects a notable increase in the pace of rate cuts post-Powell, relative to both recent market pricing and the Fed’s own Summary of Economic Projections (SEP).

3. Rectangle: Beyond June 2028, the curve continues to imply a higher terminal rate - approximately 3.6% - compared to the SEP’s estimate of 3.0%.

A useful proxy for terminal rate expectations is the December 2028 SOFR future, which currently trades at 3.59%. If you expect a material slowdown in the economy, this might be the part of the curve you want to be long as it remains elevated relative to the Federal Reserve’s communication.

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2. Macro Pulse: Four Macro Trends Pointing to Slower Growth

Several macroeconomic dynamics are beginning to unfold that suggest the U.S. economy may be heading into a slower growth phase.

1. Trend: Income growth is losing momentum - a warning sign for future consumption.

In recent quarters, robust income growth combined with a historically low savings rate helped fuel strong consumer spending. The savings rate stayed low in part because average wage growth remained elevated and asset prices were high - households, in aggregate, felt wealthier and spent accordingly. But wage growth has started to decelerate, as the chart below illustrates.

This slowdown in income - particularly if accompanied by stagnant or falling asset prices - poses a risk to consumption growth. Since consumer spending makes up roughly 70% of U.S. GDP, even a mild deceleration could have a meaningful impact on overall economic growth. For context, the S&P 500 is flat since October 2024, while long-duration bonds (e.g., TLT) are flat since October 2023.

We’re beginning to see early signs of slowing consumption in the U.S. economy. One example is the Redbook Index, which tracks same-store sales growth across a representative sample of major retailers. In recent weeks, retail sales momentum has weakened - a potential signal that household spending is starting to cool.

Looking beyond retail, a broader set of high-frequency economic indicators is also flashing first signs of slowing. The Weekly Economic Index (WEI) - which aggregates initial jobless claims, payroll tax withholdings, electricity demand, rail traffic, wholesale fuel sales, and more - is showing a softening trend. This kind of composite signal suggests the deceleration is not isolated to just one segment of the economy.

2. Trend: The Labor Market Is Losing Momentum

Following the pandemic, the U.S. labor market was historically tight. It was easy to switch jobs, and companies struggled to attract and retain workers. That dynamic was largely driven by a persistent imbalance: job openings consistently exceeded the number of unemployed workers. But that trend has reversed - for the first time in years, the number of unemployed Americans now exceeds available job openings.

Source: X

Initial jobless claims have also been trending higher in recent weeks - another signal of a cooling labor market. This slowdown could be exacerbated by AI adoption: as firms boost productivity through automation, they become less inclined to hire. This is particularly relevant for small businesses, which collectively employ the majority of the U.S. workforce.

3. Trend: The Housing Market Remains a Source of Risk

The housing market continues to face pressure from elevated interest rates. If this stagnation persists, homebuilders may be forced to reduce headcount as construction backlogs shrink. This week’s data showed that both building permits and housing starts came in below expectations. That said, housing starts still point toward a slight acceleration in single-family units under construction.

Many economists have been too bearish on housing in recent months. While single-family units under construction have indeed declined, residential construction employment has continued to rise. At some point, this divergence may prove unsustainable.

When comparing residential construction employment to broader nonfarm payrolls, it becomes clear that housing is one of the most cyclical components of the labor market. If homebuilders begin layoffs, it could spill over into overall employment and weigh on household spending.

4. Trend: Hard Data Is Now Surprising to the Downside

In the post-COVID era, many investors were misled by weakening soft data - such as falling consumer confidence or contractionary PMIs - while hard data remained resilient. For months, actual economic activity held up much better than surveys implied. But that dynamic may be shifting. In recent weeks, hard data has started to come in below expectations. This is a notable change and could mark the beginning of a broader slowdown.

Source: X

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3. Risk Assets Rundown: How the FOMC Impacted Bond Market Pricing

This week’s two major events were: 1) the FOMC meeting and 2) U.S. airstrikes on Iranian nuclear facilities. While geopolitical tensions are always a risk to markets, the true impact on financial assets will depend on how Iran responds and whether oil prices experience a sustained spike - potentially triggering global inflationary pressures. Given the unpredictability of Iran’s reaction, I’ll focus this section on the FOMC and how bond markets are repricing.

I broke down the key FOMC takeaways in a detailed thread on X. If you’re not already following me there, you can find more timely insights in real time:

Here’s what the Federal Reserve’s updated Summary of Economic Projections now shows:

• Slower GDP growth in 2025 (1.4%) and 2026 (1.6%)

• A slightly higher unemployment rate in both years

• Higher core PCE inflation: 3.1% in 2025 and 2.4% in 2026

Interestingly, while the 2025 Fed funds projection remains unchanged at 3.9%, the median path for 2026 and 2027 has moved higher - now at 3.6% and 3.4%, respectively.

This puts markets in an unusual situation: macro data is weakening, yet the Fed is removing rate cuts from the longer-term outlook. For 2025, seven FOMC members now see no cuts at all - up from four in the previous dot plot. Powell also made it clear that the Fed will not "look through" tariff-driven inflation. That reduces the likelihood of a dovish pivot in the near term. All in all, the June FOMC was hawkish relative to the economic momentum and expectations.

As outlined in the Chart of the Week section, the SOFR curve tells a different story. It’s pricing in significantly more easing once Powell’s term ends on May 15, 2026. Moreover, the terminal rate implied by December 2028 SOFR futures sits around 3.6% - well above the Fed’s long-run estimate of 3.0%. If the economic slowdown intensifies, those December 2028 contracts could offer upside as a hedge against a disinflationary recession.

On the flip side, if tariffs and geopolitical escalation - particularly in the Middle East - push inflation higher, we should expect a renewed upward move in 5-year yields. Bond markets have already started to price in this risk. The chart below shows the 3-month change in U.S. CPI alongside the 3-month change in 5-year Treasury yields - a relationship worth tracking closely.

If the Federal Reserve begins to cut rates, it could ironically push long-end yields higher. Why? Because easing policy could lift both long-term growth and inflation expectations. On top of that, tariff-driven inflation adds another upside risk to the back end of the curve. And then there’s the elephant in the room: fiscal policy. Rising deficits and debt issuance have made bond buyers far more price sensitive. All these forces still suggest curve steepening as the dominating macro narrative.

Let’s pivot to the U.S. dollar. Over the past few months, I’ve repeatedly made the case for Japanese Yen weakness against the dollar. My core thesis was that the market had become overly crowded with long-JPY positions, driven by a narrative that rising inflation would eventually force the BOJ to hike rates. However, that near-term bullish view on JPY clashed with the long-term structural bear case: the BOJ’s excessive money printing and debt levels exceeding 240% of GDP. That macro contradiction is now playing out, with the yen weakening notably.

For more detail, I outlined my full view in the following X thread - arguing that in highly indebted economies with aggressive monetary easing, the currency becomes the natural release valve.

The EUR, GBP, and CHF have remained relatively strong versus the U.S. dollar. That said, I believe the Euro and Swiss Franc are now looking increasingly vulnerable. USD shorts are paying over 200bps in negative carry versus Euro rates. At the same time, the recent spike in oil prices is a clear headwind for net energy importers like the Eurozone. Adding to that, Euro positioning has become much longer. Technically, the euro is approaching long-term resistance on the daily chart.

Zooming in, the 4-hour chart shows the euro testing an upward trend line. A clean break below this level could indicate that bullish momentum is fading.

Let’s turn to equities. The S&P 500 has remained resilient despite the Iran-Israel conflict. Meanwhile, Israel’s TA-125 index has rallied to new highs, reflecting market optimism about a potential long-term peace settlement and possibly a more Israel-friendly regime emerging in Iran.

The U.S. stock market should remain largely insulated from the conflict since it does not directly affect U.S. corporate earnings. Despite signs of weakening macro momentum, I remain long equities. For a meaningful downturn, we would need a sustained series of growth-negative news. In the absence of that, equities tend to drift higher over time as earnings grow.

And earnings expectations - as highlighted in last week’s report - have risen to new highs. For me, that is reason enough to remain long equities, but with “one foot out of the door”. I think the backdrop of weakening hard data, high valuations and the Federal Reserve on hold could mean that it will be time to take off equity exposure at some point in the second half of the year.

It’s also worth highlighting that many investors who missed the rally from recent lows have now jumped back in. The NAAIM Exposure Index rose to 94 this week. Historically, readings above 95 have often preceded pullbacks. When positioning becomes too crowded and there are few buyers left, a 3-5% correction becomes more likely.

Lastly, I want to touch on gold. I’m considering increasing my allocation again in my long-term investment account. Gold remains a strong portfolio diversifier, and central banks continue to accumulate it. According to the World Gold Council’s Central Bank Gold Reserves Survey 2025, published June 17th, 43% of central banks (31 out of 72 respondents) expect to increase their gold reserves over the next year. This is up significantly from last year’s 29% (20 out of 69).

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4. Trade Tracker / Portfolio Update

Unfortunately, I am restricted in what I can trade. If that would not be the case, I would have been short JPY futures for a while. Or I would have looked at shorting CHF futures on Tuesday. Instead, I converted most of my Euro cash into US dollars in my EUR-denominated trading account on Tuesday. It is not ideal as I would much rather trade long US dollars versus other currencies - the Euro has been the strongest currency recently.

Alternatively, I am thinking about converting back the US dollars into Euros, but buying US dollar index futures. The US dollar index is 57.6% Euros, 13.6% JPY, 11.9% GBP, 9.1% Canadian dollar, 4.2% Swedish krona and 3.6% Swiss Franc. That way, I could trade the view versus a basket of currencies. Still far from ideal, but possibly better than converting Euros into US dollars.

My two main trade ideas are still long US dollars (short JPY, short CHF) and long equities. In fixed income, I think long SOFR December 2028 as a hedge against a deflationary recession looks attractive as the terminal rate pricing remains elevated relative to the Federal Reserve’s communication. The trading account is up 6.36% year-to-date - I am waiting for the next great risk-to-reward trade.

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5. Closing Thoughts / Outlook

Next week promises a busy calendar, featuring quite a few economic releases alongside numerous Fed speakers, most likely new Iran-Israel headlines, and potential updates on tariffs.

• Monday: European PMIs, UK PMIs, US PMIs, Fed’s Waller and other officials speak

• Tuesday: Fed Chair Powell testifies, US Consumer Confidence, German Ifo Business Climate, Canadian inflation data

• Wednesday: Fed Chair Powell continues testimony, Australian inflation figures, New Home Sales

• Thursday: BOE’s Bailey speaks, Initial Jobless Claims, Durable Goods Orders

• Friday: Canadian GDP, US Core PCE inflation, Tokyo Core CPI

Looking ahead, two key dates to watch are July 4th — the deadline for the “Big Beautiful Bill” in the House — and July 9th, when the current tariff pause expires.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

I was quite busy this weekend, which is why I am posting this article on a Monday. Let me know if you like the new structure: 1) chart of the week, 2) the economy, 3) views on markets, 4) positioning update, and 5) outlook. If you have any other feedback or would be interested in a specific topic, feel free to reach out in the comments below. Having said that, let’s dive right in!

These write-ups take a lot of time and effort to put together, so if you find them helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these pieces out regularly. Having said that, let’s dive right in!

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1. Chart of the Week: A Eurozone Hike in 2026?

Investor sentiment around the Eurozone’s economic outlook has brightened. Euribor futures are now pricing in 9.5bps of rate hikes in 2026, and the German yield curve implies the 3-month rate will trend higher from here (see chart). The European Commission expects Euro Area GDP growth of 1.4% and inflation at 1.7% in 2026. Unlike the U.S. - where inflation remains sticky - Eurozone inflation has hovered around the 2% target for months.

But Europe still faces significant structural challenges. It’s a slow-moving, heavily regulated market, often unfriendly to business. In this context, the bar for the ECB to hike in 2026 is quite high. A few weaker-than-expected data prints could easily prompt markets to reprice for cuts rather than hikes. To me, it looks like an asymmetric trade to bet on 9.5bps of hikes in 2026 getting priced out of the Euribor curve.

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2. Macro Pulse: Tariffs, Oil, and AI

The latest CPI release - the first to reflect the early effects of Trump’s new tariffs - came in slightly below expectations. Core CPI rose 2.9% versus 3.0% expected (see chart below), while headline CPI met the forecast at 2.4%. I suspect much of the surprise came from firms front-loading inventories ahead of tariff implementation, which temporarily dampens pricing pressure. That effect won’t last; once it fades, tariffs should become inflationary.

Markets have adapted to the tariff talk. U.S.-China trade talks remain constructive but lack tangible progress, while Bloomberg reports the U.S. and Mexico are close to a deal that would lift Trump’s 50% steel tariffs within agreed quotas. Analysts expect the tariffs could reduce corporate earnings by about 0.5%. As I’ve argued before, the economy can likely absorb a blended tariff rate of 10–15%. Growth may slow modestly, but inflation could drift higher.

The Iran-Israel conflict poses a more immediate risk to volatility. Two possible escalation scenarios are worth watching: (1) Iran could suspend its crude exports - roughly 1.4–1.5 million barrels per day - or (2) attempt to block the Strait of Hormuz, through which 17 million barrels of oil flow daily. The latter scenario is unlikely, as it would be self-damaging for Iran and its allies.

Even if Iran cuts exports, OPEC+ has over 5 million barrels per day in estimated spare capacity, enough to offset the loss. While these figures are imprecise, the surplus limits the upside risk. Bloomberg Economics estimates that $100 Brent oil would add 0.6% to headline CPI, pushing it to around 3.2% by June. I doubt the oil price will increase to $100 as fast money positioning has become much less skewed to the short side, but it still is a scenario worth considering.

And lastly, I wanted to take a look at the impact of AI on economic growth. The below chart shows that spending on data centers and infrastructure has already been a significant tailwind to U.S. GDP growth in Q1. Computer equipment outlays added 1% (!) to Q1 U.S. GDP numbers. The economic impact is real - even before productivity gains start showing up in corporate margins.

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3. Risk Assets Rundown: Are Bond Vigilantes Back?

Last Friday, markets de-risked following the escalation between Israel and Iran. The S&P 500 fell 1.13% on the day. But interestingly, U.S. Treasuries - a safe haven asset - failed to catch a bid. Instead, yields moved higher across the curve: 2-year yields rose 3.8bps to 3.95%, 10-year yields climbed 4.4bps to 4.41%, and 30-year yields increased 5.5bps to 4.90%.

In my view, there are two key concerns weighing on U.S. fixed income: (1) the inflationary implications of tariffs and (2) the scale of fiscal deficits and the associated bond supply that must be absorbed by the private sector. Let’s focus on the latter for now.

Warren Pies estimates that the U.S. needs to grow nominal GDP by roughly 6.6% annually to stabilize its debt-to-GDP ratio. Over a 5-10 year time horizon, it is unlikely the United States will be able to achieve such growth rate.

The United States is under significantly more pressure than most developed economies to generate strong growth in order to service its debt. Interest payments now account for 4.6% of GDP - more than double the level seen in many other advanced nations.

If Trump’s Big Beautiful Bill passes, fiscal deficits will stay elevated. Once the debt ceiling is lifted, the Treasury will flood the market with bills - but eventually, it will need to term out the debt. Long-dated bonds carry more interest rate risk than short-term paper, so there must be enough investors with the appetite and capacity to absorb that duration.

If the private sector cannot take down the supply - whether due to fiscal concerns, limited risk appetite, or leverage constraints - yields will rise. And when yields rise, there will be ripple effects across all financial assets, including equities. We’re already seeing signs of this dynamic: equity volatility has increased on auction days.

So far, the 5% level in 30-year yields has held. As long as long-term inflation expectations stay anchored, investors with long-duration liabilities - such as pension funds and insurance companies - are likely to step in and buy 30-year bonds if yields push meaningfully above 5%.

We are entering a new regime marked by re-shoring, de-globalization, and rising geopolitical tensions. The low-inflation decade of 2010–2020, when inflation averaged just 2%, appears to be over. Looking at a broader historical context, average U.S. inflation over the past 125 years is around 3%, and since the U.S. abandoned the gold standard in 1971, the average has been closer to 3.9%.

Long-end yields reflect three components: inflation expectations, real rates (i.e., growth expectations), and the term premium. If long-term inflation expectations rise to 3–3.5%, real rates normalize around 1–1.5%, and the term premium climbs to 1–1.5%, 30-year yields could reprice higher - potentially reaching a range of 5 to 6.5%.

Turning to the U.S. dollar: in recent weeks, the USD and U.S. Treasuries have begun behaving like assets from an emerging market. Typically, higher yields would support the dollar, but that hasn’t been the case. Bond investors are mainly concerned about inflation and fiscal spending, while the dollar is being driven by global capital flows.

The U.S. has been a magnet for global capital for decades, and both domestic and international investors are heavily overweight U.S. assets. For instance, U.S. equities now make up 70% of the developed world’s total market capitalization - a staggering concentration.

According to Apollo, foreign investors hold $18.5 trillion in U.S. equities (roughly 20%), $7 trillion in U.S. Treasuries (about 30%), and $4.6 trillion in U.S. corporate credit (also around 30%). If foreign demand for U.S. assets fades - either through active selling or simply a lack of new buying - it could place meaningful downward pressure on the U.S. dollar.

Over the past decade, U.S. dollar strength during risk-off episodes incentivized foreign investors to leave FX exposure unhedged. But that dynamic appears to be shifting. With the dollar weakening in recent months, foreign investors may be increasingly inclined to hedge their currency exposure - implying steady or growing USD selling pressure.

Combined with elevated U.S. equity valuations, these structural shifts in rates and FX markets present a strong case for reducing exposure to U.S. assets. The structural bear case for the US dollar is that this dynamic becomes a (bearish) self-reinforcing feedback loop. For now, the DXY has yet to decisively break below its July 2023 lows.

The most bullish argument for the U.S. dollar is positioning. Sentiment has gotten very bearish, and currencies like the JPY, EUR, CHF, and GBP have already rallied significantly against the dollar. If a bullish catalyst emerges - such a stronger U.S. data - it could catch many investors wrong-footed. A good example of this setup is CHFUSD, which has diverged meaningfully from the 5-year yield differential.

My trading style is contrarian. I am trying to pick turns when positioning is getting extreme and the tape is improving, i.e., bearish news do not lead to further sell offs. I will continue to monitor the US dollar from a bullish perspective - because that is my trading process - but I acknowledge the structural bearish headwinds and will be careful to cut my losses if the position goes against me.

Let’s turn to equities. I remain long the S&P 500 and have rolled my futures position into the September contract. I don’t see a U.S. recession on the horizon, and in the absence of sustained, growth-negative surprises, I expect equities to continue drifting higher. Next-twelve-month earnings estimates have already climbed to new highs and equities have traded exceptionally well in the past few weeks.

AI’s impact on profit margins could become visible over the next two years. Big Tech cut new graduate hiring by 25% last year - largely because AI can now perform many of those entry-level tasks. Even if AI progress stalls - which it won’t - it could still replace many white-collar roles over the next five years, including tax consultants, lawyers, auditors, investment bankers, marketers, HR professionals, and more.

Dario Amodei, CEO of Anthropic, estimates that AI could eliminate up to 50% of junior white-collar jobs within the next one to five years. This shift would boost corporate margins but could also weigh on consumption. In the short run, however, I expect the margin expansion to more than offset any drag from reduced spending.

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4. Trade Tracker / Portfolio Update

My positions remain unchanged - I’m still long the S&P 500. On Monday, I converted euros back into US dollars but reversed that move on Wednesday after it went against me. Year-to-date, the account is up 7%. Unfortunately, my current job does not allow me to trade everything, e.g., Euribor futures. If I had more flexibility:

1. I would look to go long the US dollar, preferably against JPY or CHF.

2. I’m also keeping an eye on the metals complex, especially silver, for potential short opportunities, given the extended positioning.

3. I’d consider fading the 9.5bps of hikes currently priced into Euribor futures for 2026.

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5. Closing Thoughts / Outlook

Next week features four key central bank press conferences to watch:

• Tuesday: BOJ press conference

• Wednesday: FED press conference

• Thursday: SNB and BOE press conferences

Looking ahead, two critical dates stand out: July 4th, the deadline for the “Big Beautiful Bill” in the House, and July 9th, when the current tariff pause is set to expire.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

This article is structured in five parts:

1. Chart of the Week

2. The Economy

3. Views on Markets and Trade Ideas

4. Positioning Update

5. Closing Thoughts / Outlook

These write-ups take a lot of time and effort to put together, so if you find them helpful, I’d really appreciate it if you shared them, forwarded them to a friend, or posted them on X. It keeps me motivated to keep doing the work and putting these pieces out regularly. Having said that, let’s dive right in!

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1. Chart of the Week: The Great Decoupling

Rising US yields typically support the US dollar. But when fiscal concerns dominate, higher yields can coincide with a weaker dollar - breaking historical correlations. That’s exactly what we’ve seen recently. Sentiment and positioning are skewed bearish the US dollar. But with yield differentials unlikely to weaken further, the dollar could be poised for a rebound. Add in the potential for positive US economic surprises, and the risk-reward for USD longs looks attractive again. I am waiting for an entry signal.

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2. Macro Pulse: Slowing… But Ripe for Upside Surprises

Before diving into asset markets, a quick scan of recent economic data:

• ADP Payrolls came in soft at 37k vs. 114k expected - fuelling slowdown fears early in the week.

• But Friday’s NFP reversed that narrative: 139k jobs vs. 126k expected (see below), with private payrolls beating at 140k vs. 120k.

The labor market is cooling - but not cracking. A key reason: reduced immigration has slowed labor force growth. With fewer people entering the workforce, fewer jobs are needed to keep the unemployment rate stable.

ISM Services data painted a stagflationary picture:

• Headline: 49.9 vs. 52 expected (soft)

• New Orders: 46.4 vs. 51.6 (very weak)

• Prices Paid (see chart below): 68.7 vs. 65.1 (hot)

The ISM Services data suggests a slowdown. But most of the hard data is still consistent with ~1–2% GDP growth, not a contraction. Meanwhile, consensus growth forecasts for developed markets are now much lower:

• Eurozone, UK, Japan: 0.75–1.0%

• US: 1.25–1.5%

Source: Andreas Steno on X

With expectations depressed, the bar for upside surprises is low(er) - and historically, a weaker dollar has often preceded just that. A weaker US dollar means financial conditions are easing and positive economic surprises are more likely to follow.

Source: Andreas Steno on X

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3. Risk Assets Rundown: Dollar Strength & the Flattening Risk

STIR pricing seems to be slightly dovish. Inflation is likely to stabilise or even re-accelerate from here, the unemployment rate is at historic lows and the economy is expected to grow at 1-1.5% p.a in 2025. Markets are still pricing 2 cuts in 2025, while the Fed’s March SEP projects a slower path.

In light of ISM Services Prices Paid coming in higher than expected and tariff risks looming, a “no cuts” scenario in 2025 is becoming more likely. The below chart shows Goldman Sachs’ core PCE forecast, which projects a significant re-acceleration in core PCE from here.

On the Long-End: Where to for 10-30Y Yields? In my opinion, this is a much more difficult question to figure out. Fiscal deficits and consistently higher inflation call for higher 10-30 year yields. With the Federal Reserve less likely to cut interest rates and the 3m10y spread depressed in a historical context (see below), it feels like the 10-year yield should be higher than 4.50%.

Last week’s price action was not encouraging with a US bonds selling off after Friday’s better than expected NFP numbers.

Yield curve steepener trades have worked well in recent months (see below 5y30y), but I think the pain trade in fixed income could be “bear flattening”, i.e., higher yields across the curve but front-end yields rise more than long-end yields. Should the short-end reprice higher, e.g., zero or one cut in 2025, but the long-end remains pinned as real money (pensions, insurers) buy ~5% yields, the trade could work out.

If you are looking to short the long-end (somewhere), the risk/reward in Germany could be more attractive than shorting the long-end in the United States. German 30-year yields have fallen from 3.20% (area of resistance) back to 3%.

But the fiscal trajectory in Germany has changed dramatically. For the first time since the GFC, Germany will ramp up net issuance.

Add in that European industrial production might have bottomed (see chart below) and that increased fiscal stimulus will likely lead to higher economic growth and inflation, and long-term interest rates look too low.

The short-end could already be sniffing out that European interest rates will rise. Euribor futures are pricing in 12.5bps in hikes between December 2025 and December 2026.

Let’s take a look at the US dollar. Since January, the EUR, GBP, CHF, and JPY are all up 7–10% vs. the dollar. Many macro investors are bearish fixed income, but it feels like they are even more bearish US dollars. This is also reflected in the positioning data, which shows speculators long Euro and Japanese Yen (see below).

I’m looking to fade this move. For non-US investors: a simple way to express this is via USD money market funds. On Interactive Brokers, this Ireland-domiciled USD MMF yielding ~4.1% p.a. could be a good alternative, symbol: 00B39VC86. In my case with a EUR-denominated trading account, should the USD appreciate by 5%, the total return could be ~7% in six months with little volatility.

And lastly, let’s talk equities. The main reason I remain long the S&P500 is that flows continue to support the market, and there’s no economic disaster on the horizon. For a sustained selloff to materialise, we’d need a steady stream of growth-negative news - and I just don’t see that right now.

Last week, I noted Morgan Stanley’s estimate of $15 billion per day in S&P 500-like product demand. As realised volatility fades as April’s turbulence drops out of most 30-60 day lookback windows, volatility-targeting funds are set to ramp up their equity exposure. That shift means flows from systematic strategies will stay supportive. Add in retail demand and buybacks, and the bid remains firm.

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4. Trade Tracker: Long SPX & USD

On Monday - contrary to the investment case I laid out above - I converted my US dollars back into Euros. The position, on which I already took partial profits, ran against me. In total, I lost very little, close to ~0.3%.

But I am thinking about opening the long US dollar position again. I laid out my thinking above: 1) bearish sentiment/positioning, 2) decoupling of yields and the US dollar, and 3) the potential for the US economy to surprise positively.

Year-to-date, the trading account is up 7.4%. I am still long the S&P500, which is my only position right now. I might convert some of my Euros back into US dollars next week and invest it into a USD money market fund.

I am also looking at the metals complex, most notably silver (see below). Fundamentally, I am bullish silver (AI & solar will lead to a silver shortage), but in the short-term the rally could be over-extended and positioning is getting crowded long.

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5. Closing Thoughts: Inflation and Tariffs

Next week will be interesting. China and the United States will continue trade talks in London, which could lead to big headlines. On Wednesday, we will get US CPI data. The two big dates to keep in mind are July 4th, the Big Beautiful Bill target date for the House, and July 9th, the end of the tariff pause.

I hope you enjoyed this article. This is not investment advise and all views are my own. I write these articles because they help me to stay disciplined and transform my thoughts into actionable trade ideas. I always appreciate your feedback, likes and comments!

This article is structured in three parts: first, I discuss my view on equities, then I discuss my views on interest rates, and finally, I share how I navigate markets in my trading account. Let’s dive right in!

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Equities: A Flows-Driven Market

Morgan Stanley’s Mike Wilson recently highlighted a key driver of equity performance: relentless inflows.

• Retail investors are buying roughly $5bn/day

• Systematic/CTA strategies are adding another $5bn/day

• Corporates are executing buybacks worth about $5bn/day

That’s approximately $15bn/day in S&P500-linked demand. At the same time, underinvested institutional investors - particularly discretionary hedge funds and long-only mutual funds - are being forced to chase the rally after lagging performance since early April. The NAAIM Exposure Index suggests that active managers have been running with 50–90% equity exposure since April.

Despite a 23.3% rally from the lows, sentiment remains surprisingly bearish. The AAII Bearish Sentiment has declined but remains elevated.

On X, the discourse is split into two camps:

• One argues the Trump tariff story is priced in and risk-on will continue

• The other points to stretched valuations, policy risks, and softening data

The following two X posts show what I mean. The bull case:

And the bear case:

I think both X accounts are great follows. Their opposing conclusions - based on the same macro landscape - underscore how uncertain the outlook remains. See the chart of the Economic Uncertainty Index below.

My opinion can be summarised in a few bullet points:

• The flows: Flows remain bullish. Institutional investors are underinvested and need to chase the market higher.

• The economy: For the market to sell off, the economic hard data needs to deteriorate. I do not see that happening right now.

  • Tariffs of 10-15% will hit corporate profits by only 0.5%

  • Fiscal deficits will remain at 6-7% (front-loaded in 2026 & 2027)

  • Tax cuts will boost domestic consumption

  • Accelerated depreciation will boost domestic and foreign investments

  • Energy prices will remain low with OPEC+ increasing production

  • Global growth could accelerate with Europe and China stimulating

  • AI will increase capex, boost productivity and lead to higher profit margins

• The tape: The price action is much better. Negative news, e.g., tariffs, do not result in the market trading lower anymore.

Valuations are stretched - especially on a headline level. But the 21x forward PE for the S&P500 is distorted by the Mag-7, which trade at an average 27x. The equal-weight S&P500 trades at 17x, and the S&P Midcap 400 at 15x - both near their 20-year median. In short, the “average stock” isn’t outrageously expensive.

Also, historical comparisons to 1950–2000 markets miss the structural shift created by the internet. The Mag-7 have billions of global customers and high-margin scalability, which warrants higher multiples. The chart from Warren Pies below supports the idea of structurally elevated PEs for a high-quality S&P500.

Source: Warren Pies on X

I am still long the S&P500 from April 24th.

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Fixed Income: Zero Cuts in 2025?

Friday’s personal income report came in hot: +0.8% MoM vs. 0.3% expected. While a big chunk was driven by transfer receipts (e.g., Social Security), employee compensation and small business income were solid too. The income-driven expansion remains intact, with nominal wage growth at 4.6%.

The Atlanta Fed’s GDP Nowcast is forecasting 3.8% GDP growth in Q2-2025 now.

Meanwhile, core PCE printed at 2.52% YoY - right in line with expectations - while headline PCE came in at 2.15%. With core inflation still above the Fed’s 2% target and the labor market holding up, Powell has little reason to cut rates prematurely.

Source: Nick Timiraos on X

All eyes are now on next Friday’s nonfarm payrolls. Consensus expects +130k jobs and an unchanged unemployment rate of 4.2%. Since Trump took office, net immigration has fallen sharply, which will likely suppress job creation but also stabilize the unemployment rate by limiting labor force growth.

As long as:

• Inflation remains above target

• GDP grows at 2–3%

• Unemployment stays low

…there’s little justification for the Fed to ease aggressively.

The real policy rate (Fed funds minus core PCE) sits around 1.8%, which the Fed probably considers sufficiently restrictive. What is the upside for the Federal Reserve cutting interest rates when the economy is still growing and the labor market remains tight? If inflation resurfaces, everyone would blame it on the Federal Reserve.

The short-end is currently pricing 2x more cuts in 2025. I think there is the possibility for zero cuts in 2025 if the labor market does not deteriorate.

The short-end has already started pricing less cuts in 2025 (short SOFR Dec25) and more cuts in 2026 (long SOFR Jun26). When Trump announced the 90-day pause on reciprocal tariffs and equities bottomed, the short-end started to sniff out the Federal Reserve will not have to cut rates aggressively in 2025.

The SOFR curve has moved up quite a bit from just four weeks ago. Still, SOFR futures imply more easing than the Fed’s March Summary of Economic Projections (SEP):

• 2025: Fed median = 3.9%, SOFR-implied = 3.81%

• 2026: Fed median = 3.4%, SOFR-implied = 3.24%

I lean toward fewer cuts in 2025, but after the recent repricing, the risk-reward is less compelling. Two cuts have already been priced out of the curve.

With 5y yields at 3.96%, 10y yields at 4.40% and 30y yields at 4.92%, I do not see any great opportunities in fixed income right now. If the bond vigilantes push 30y yields above 5% again, TLT calls (or spreads) could be an interesting play with limited downside.

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Trading and Portfolio Management

My current positioning remains unchanged:

• Long S&P500

• Long USD cash in a EUR-denominated account

Last week’s article, “The Art of Doing Nothing,” still holds true. Sometimes, inactivity is the right move.

Year-to-date, the account is up 6.9%.

• Max drawdown: -2.85% over 9 days

• Correlation to S&P500: 0.28

• Correlation to BlackRock’s 60/40 (AOR): 0.31