Capitulation!
“It takes a lot of effort to win back credibility after having lost it so heavily.”- Giorgio Napolitano.
Well, folks, we did extensive brainstorming and concluded that the most appropriate title for this week’s newsletter would be “Capitulation”.
As per Merriam-Webster, Capitulation means: “the act of surrendering or yielding”.
If you are wondering if it’s about bond/equity bulls or bears, then you are probably wrong about your assessment.
We are talking about the surrender of the world’s largest central bank to Mr Market, which two years ago defeated JayPo when he resorted to the rhetoric of “transitory inflation,” a historical policy error.
Nonetheless, the Fed got the chance to regain its lost credibility, but once again, a “premature” pivot in December led to a grave policy blunder.
As a result, we are witnessing a resurgence of inflationary expectations (see the insane rise since December).
As markets drive the UST yields closer to the highs witnessed last October, bleeding the 60:40 portfolio holders, JayPo has realized they have committed a disproportionate error.
Thus, this week, the Fed capitulated and made a U-turn, transforming the narrative prevalent in the last five months.
“Recent data shows lack of further progress on inflation this year.”- JayPo.
“Restrictive policy needs further time to work.”- JayPo.
“If data called for higher rates, Fed will hike”-Williams
There is also a saying that “markets stop panicking when central banks start panicking”.
Though we have likely not reached the stage yet, the Fed is undoubtedly taking note of the resilience of the US economy and inflation.
Furthermore, geopolitical tensions have been an enormous tailwind for commodities repricing.
Let us comprehend the latest macro data released in the US and decipher the cross-asset movement.
Geopolitics!
Since geopolitics has taken centre stage in the last few days, we will begin our analysis of the events transpiring in the ME.
Earlier this week, we wrote to our paid subscribers about the three likely outcomes of the Iran-Israel escalation.
While the so-called “geopolitical” analysts declared that Israel would not retaliate against the unprecedented Iranian aggression, we were dead sure about the imminent counterattack.
Nonetheless, as per our expectations, we had given the highest probability of 60% to
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