A stat I can't really get over is, despite Korean equities (Kospi) being up over 60% YTD, the current account surplus is likely going to be close 8% of GDP this year, the FX is down 2.5% vs. USD; and more than that in REER terms.
Something that's interesting this week in FX is that we had a decent move lower in the DXY all with USDJPY unched near its previous highs.
Good stat I heard from a client today is that the latest valuation jumps for the 3 big privates (Anthropic/OAI/SpaceX) attempting to IPO later this year, has created over $2T in unrealized gains in the last 12-15 months. In context, that is 3.5% of SPX market cap.
To quote this weeks Fed minutes, the risks to both sides of the mandate are "elevated." The problem right now for the doves on the FOMC with this "goals in tension" is, the price side has a mechanical drift up from oil and the U-rate has a mechanical drift down via labor supply.
It feels like 3 things holding back USD from properly reflecting this ToT move:
1) we learned last year, VIX up *can be USD down given NIIP
2) incremental hikes are being priced in RoW vs. US
3) gamma is owned
At a certain point though, it does seem the shock will be too big.
New Cheap Convexity post on the April BoJ odds on Polymarket.
cheapconvexity.substack.com/p/april-bank...
This is now the second year in a row that the GS January end of year core PCE forecast of 2.1/2.2% gets blown out by a supply shock. Not an easy world for monpol.
Typically, in events like this, risk premium has negative theta, as at a higher price more incremental risk premia is needed to keep it. With this episode, it feels like the opposite, as "time passes", and the strait stays like this, the market is actually accruing risk premium.
If you look at years that the $XLF was down 10% or more in Q1, the years that come up are:
2002, 2008, 2009, 2020.
Definitely not boring years.
Assuming this is the backdrop next week, it is going to be interesting to hear from 8 of the 10 G10 central banks next week at their respective policy meetings. With CBs such as the Fed and ECB being forecast meetings. The tolerance for (another) supply shock will likely vary.
The interesting duality right now in this war is, sitting in Tel Aviv, it feels like things have clearly gotten better. However, on my screen, things seem to be getting worse.
It feels like the question now for markets is more about impairment rather than duration.
This is a meaningful Terms of Trade episode for markets. But, I can't help thinking that part of the px action right now is based on how poorly the market was positioned for a ToTs shock.
- Long Asia equities
- Received EM rates
- Short put side in DM front ends
The market is trading this war as a terms of trade episode much more than a flight to safety. I think a good way to see this is in the fact that AUDCHF is actually rallying this week.
Pretty amazing to me that Korean equities are up almost 50% YTD, SPX is flat, and USDKRW is basically unchanged.
This was a really interesting from Lagarde last night in Washington DC. Actually think the FX takeaways are more interesting than the rates ones.
www.ecb.europa.eu/pr....
Tricky part for the privates crew now is that this re-rate is happening at a benign macro time. NGDP 5ish, Fed easing bias, deal activity picking up, IPOs open and for private credit there is yield + AI showing good ROIC.
Despite that, lot of these big names are down 20% YTD.
Strange given that RMP is running
Not sure what to make of this yet, but it feels pretty telling that despite a monster payrolls beat, 2y yields in the US are unchanged on the week.
We have become used to market px action being all about the AI "input" (spend). So far in '26, the market is paying attention to the "output" (impact) too. The juxtaposition between markets reaction to the GOOG capex number to what is going in saas and the labor market feels new.
Seeing a lot of "overreaction" takes re software. Obviously not a space I follow closely, but this seems like pretty normal market behavior. Markets aren't just outcomes, they are distributions. And if this sort of left tail went from 0% to 5%, that is a big deal in price terms.
The market has seemingly decided that whats good for semis is bad for saas. The problem is, as an inverse, what is bad for semis is likely bad for everything at this point. I.e. anthropic progress hurts saas, but a lack of progress might not help given the market's AI dependence.
Despite a rise in the expected growth outlook in the US to start the year, it's interesting that the US continues to underperform RoW in terms of equity markets. YTD performance:
- US +2%
- Europe +3%
- China +4%
- Japan +8%
- EM +8%
You know you were a pretty good macro trader when your head of research now runs the Fed and your most prominent analyst/number 2 runs the Treasury.
In macro we were trained that interest rates are an FX input. I think more and more in this current era, the relationship has flipped, and FX is now more of a rates input. Strong bond markets need strong FX, and vice versa.
Something that feels pretty telling about these TACO episodes is:
- risk assets snap back
- USTs only stabilize
- and the USD keeps softening.
Feel like that is a takeaway more than the "will he/won't he"
There is a lot of applaud for Carney's speech at Davos yesterday, and I get why. However, this "rupture" didn't happen last year, it happened a while ago.
Canadian GDP per capita has been stagnant since 2011. Tariffs on Canada happened last year.
When someone "imports" domestic demand or defense, they "export" capital or services. It's still in a sense a balance of payments.
In some way, Trump being worried about the economy into the midterms is not allowing the bond market to be.
I am not saying it is right or wrong, but I think a lot of market pricing into 2026 is based on the assumption that these two things (AWP vs. NGDP) will diverge. When historically, that is quite rare in any durable way.
