Why is the market so strong? Globally, inflation expectations are falling, allowing central banks to begin their Liquidity Cycles.
Its always About Liquidity
- As Growth Slows = Markets Expect Liquidity
- I'm focused on M2 YoY (Money Supply Growth) & Central Bank Balance Sheets (Central Banks Liquidity)
Global Governments are committed to monetizing technologies that increase productivity because it is the only way to grow GDP ( pay the bills) in the face of global population decline.
Net Liquidity turns up, S&P new 52 week highs, VIX 3y Low...
Market Breadth Returns
Small Caps Outperform
S&P Equal Weight is trying to breakout.
Global market Breadth - 52 weeks HighsStock Index's making 52-week highs: Germany, Japan (30y high), Taiwan, India, and even Russia.
Economic Activity
Economic Growth continues to slow at a slower pace while inflation plummets. As long as inflation expectations plummet, Global Liquidity shall return, as in Money Printing.
Business ActivityISM services and manufacturing continue to decline, pressuring the Fed to Pause in June.
InflationEuropean inflation expectations are plummeting. This gives room for rate cuts & QE around the corner, Global liquidity will move higher.
China's Producer inflation is Negative, giving room for more Rate cuts and QE.
JobsAs a leading indicator of the unemployment rate, this puts pressure on the Fed to stop hiking, thus the end of the rate hiking cycle.
PolicyJapan is the 3rd Largest economy. What happens when they increase Credit + and expand the Central Bank balance sheet? Global Liquidity turns up.
Macro Forces
Macro Forces are tightening conditions for the Fed, which will lead to a pause, if not dovish commentary.
10y YieldsBond yields remain elevated, but the market keeps moving higher. When the cost of capital falls, this will act as a launching pad for risk assets.
DollarThe Dollar broke out of the downtrend but now shows a lower high. The Fed Pause should take it back to 101, then lower.
Crude OilAnother production cut in an attempt to prop up oil prices. But Russia is selling cheap oil while global demand via manufacturing.
Closing Thoughts
The Squeeze begins...
Look, the Bull Market Has started...It's going to take a Black swan to Sink This Boat.
Your Macro Strategist, Jeremy Fielder
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