The Macro Narrator

Former, present and future Self • Data driven personal opinions

[The Macro Narrator @MacroNarrator]

Doubt is not a pleasant condition, but certainty is an absurd one... ~ Voltaire

[Frederik Ducrozet @fwred]

The burden of proof is likely to reverse again - for the ECB to justify another hike, they'll need to see much stronger second-round effects as Pierre Wunsch just said.

[The Macro Narrator @MacroNarrator]

@HFI_Research is that bad? :)

[The Macro Narrator @MacroNarrator]

@AahanPrometheus @prometheusmacro

[Warren Pies @WarrenPies]

JUNE JOBS

Not great

Res con payrolls fell for the 3rd straight month and have now declined by 2.4% from peak.

Private white collar jobs still lackluster as well (finance + insurance in a 1.25% drawdown/Computer system & design 4.4% drawdown).

LFPR back to pandemic levels.

[The Macro Narrator @MacroNarrator]

"The market wants firm employment, contained wage pressure, lower energy, and no renewed dollar squeeze. It also wants the AI correction to remain a positioning and valuation issue rather than an earnings-revision issue. That is asking for quite a lot, which is usually when the market starts punishing lazy narratives."

[TraderBillyAU @TraderBillyAU]

https://t.co/eTDpTXWovd

[The Macro Narrator @MacroNarrator]

@dampedspring * for experimented investors. For Juniors analysts etc... this is potentially a catastrophe, as AI can make them believe really stupid thing!

[The Macro Narrator @MacroNarrator]

@dampedspring I think zero change in "pure" alpha, but additional alpha in development & testing time (define alpha there...?).

[Bob Elliott @BobEUnlimited]

Likely to see very soft m/m inflation prints over the next couple of months as disinflation emerges.

[The Macro Narrator @MacroNarrator]

@CRUDEOIL231 Thank you for sharing. Appreciate the transparency, few people show it these days. Good luck for H2!

[The Macro Narrator @MacroNarrator]

@Alpha_Ex_LLC Harry Markopolos participated twice ? ;)

[The Macro Narrator @MacroNarrator]

@dampedspring Thanks Andy! :)

[The Macro Narrator @MacroNarrator]

@Globalflows You keep reposting this, and I keep re-watching it as it is so good and true! :)

[Rory Johnston @Rory_Johnston]

On the critical issue of empty tanker Hormuz reentries:

[Nick Timiraos @NickTimiraos]

Since January 2020, the San Francisco Fed has been tracking monetary-event surprises on FOMC day.

Their event-study data shows that last week's FOMC meeting produced the largest hawkish surprise among the 57 meetings/events tracked. https://t.co/LOZYworSH6

[Φίλιππος @phileeppos]

Implied Hormuz flow of 13.1 million barrels again yesterday (5 million Iranian, 8.1 million other). Brings the 7d average up to 8.1 mbpd. At this point it's clear the closure on Saturday was either posturing or a short-lived negotiating tactic to extract US concessions

[Warren Pies @WarrenPies]

I've argued for years that - contrary to consensus - the S&P 500 is not overvalued (due to margins + composition).

But, I have to call balls and strikes...This is the first pocket of the market where I see a potential issue.

https://t.co/YAsW4xs5Kk

[The Macro Narrator @MacroNarrator]

@dampedspring Great rational assessment, thank you Andy!

[The Macro Narrator @MacroNarrator]

"the main benefit of removing forward guidance is increased responsiveness to changing conditions/data. Making a public forecast hinders your ability to stay flexible/react."

[Warren Pies @WarrenPies]

The idea that markets will trade off "data" now rather than the Fed's reaction function is oddly circular.

Less, or no, forward guidance obscures the reaction function and introduces a higher risk premium into asset pricing. But, the market will still interpret each incoming data point through its perception of the Fed's reaction function. (i.e. does this data move the Fed closer to a tightening or loosening of policy).

For better or worse, the Fed is still at the center of the financial universe. That is the system we have. Getting rid of forward guidance does not decrease the Fed's influence on capital markets (Marty Zweig was saying "don't fight the fed" 55 years ago - long before the "dots").

From my perspective, the main benefit of removing forward guidance is increased responsiveness to changing conditions/data. Making a public forecast hinders your ability to stay flexible/react. If FOMC members hold their cards closer to the vest, then they will be able to change their minds more freely.

[Patrick Saner @patrick_saner]

Most central banks still need to actually deliver the hikes that are priced.

Chart from the great @darioperkins

[The Macro Narrator @MacroNarrator]

"Forward guidance was a tool from the ZIRP era pioneered by Bernanke as a way to ease monetary policy without going into negative rates. We are no longer in a ZIRP world and it was time to change this."

💯👇

[fejau @fejau_inc]

For years now, the actual rate change announced at every FOMC meeting did not matter. By the time the meeting occurred, the move was priced into the SOFR curve weeks in advance. The only exception to this was in September 2024 when Powell surprised the rates market and cut 50bps. This was one of the only times where we went into a meeting with 50/50 odds priced into the market (either 25bps or 50bps). This meant that the market reaction was largely driven by the change in pricing once it was announced, not the future reaction function.

Before the ZIRP era, this was the common way to do things. However, under Yellen and Powell, and pioneered by Bernanke, the Fed mandate was to never surprise the rates market and ensure their move gets priced into markets well-ahead of time.

This is why for so many years casual Fed observers would be confused on days when for example we would cut rates and markets would sell off, or we held rates steady and rallied. The market reaction function was entirely dependent on forward guidance and forward expectations, not the announced change that day.

We are now going to enter a regime where what the Fed actually decides to do each meeting will be the marginal market driver again and that is by design.

In practice, I expect the next few meetings to be priced at 50/50 odds moving forward and that's by design. It is now up to rates speculators to analyze the economic data and come to their own analysis on where rates should be, the Fed will not be spelling it out for us any longer.

Overall, I think this is a good thing. Forward guidance was a tool from the ZIRP era pioneered by Bernanke as a way to ease monetary policy without going into negative rates. We are no longer in a ZIRP world and it was time to change this.

On net, expect higher rate volatility, more sensitivity to changes in SOFR in the economy, less smoothening of business cycles, and a return to a more pure Taylor rule-like reaction function.

This is a big shift and in my opinion a welcome one, despite my podcast being named Forward Guidance!