Especially in light of Warsh's pivot away from guidance at June FOMC, I thought the way Lagarde framed it in her Sintra speech tonight was well done. "In times of uncertainty, forward guidance loses its value. But framework guidance becomes more valuable."

Feels interesting to me that despite the rally last week in FI, we haven't done much to July pricing since the FOMC. Still almost 8bps priced.

It feels like the market thinks the transition of AI spend from FCF to issuance (eq/credit) will happen seamlessly. It likely won't change the aggregate spend on power, data centers, memory, chips etc. but the global liquidity backdrop will surely be different given the size.

Something interesting to me about the FOMC today is that, not only have the 2025 doves (u-rate) converged to the 2026 hawks (PCE), but the 2026 hawks have gotten incrementally more hawkish in recent weeks. Feel like that is a bit underrated in light of all the Warsh speculation.

Today is going to be a super interesting day as a Fed watcher. We will get new information value around the reaction function and the balance of risks, but also in how the Warsh Fed wants to communicate with markets on a go forward basis. Really excited for it.

Irony is that Warsh criticized the Fed for being too model dependent. Now, the only reason not to hike would be for model reasons (wages).

It is pretty amazing when we have a $SMH down day, all the laggard sectors rally. Financials, consumer, staples, healthcare, housing etc. all up 1%+ so far. With NQ down more than 1%, equal weight SPX is up.

Going into NFP tomorrow, it feels like the US labor market right now is meaningfully softer than 2021-2023, but holding up better than 2024-2025.

A continued problem for the BoJ is the delta of what they think is hawkish and what the market thinks is hawkish continues to be as wide as ever.

The market thinks that Warsh will fully drop forward guidance, but that his dovish "anchor" over the U6/Z6 contracts will persist. This feels more like an either or to me in light of where the spot data is.

Over the last month, USDJPY had oil prices go down, June BoJ get solidified and MoF intervened to the tune of $73B. Despite all of that, we are unchanged at 159.

Something that feels pretty telling in USDJPY today is, global yields are down 10bps, crude oil down 6%, a general reduction in risk premia and USDJPY is pretty close to unched at 159.

Relative to the fundamentals (barrels offline), it's interesting that the oil right tail hasn't fully realized. What is more interesting to me, 3m into this shock with inventories continuing to get drawn, the market feels like it still trades headline risk asymmetrically dovish.

Something to keep in mind for the Fed right now, the Dec '25 SEP thought that 75-100bps of real fed funds was appropriate. Based on current inflation fixings, if the Fed doesn't hike, the real funds rate will end the year slightly negative. That's a big change in policy stance.

Post Masu's speech the market feels more comfortable with June BoJ getting done. The paradox the BoJ should start talking about is, they want to go slow in the hopes of doing "less," but as we have seen, without anchoring JGBs/JPY, they're going to end up inevitably doing "more."

Not that it matters when $SMH is up another 13% MTD, but there is some sub sector weakness starting to creep in. Financials, home builders, consumer discretionary have all had weak months and are now down YTD. Feels like rates starting to get noticed.

Now that FCF for the hyperscalers has been taken out to a large extent, the demand for capital between AI capex estimates and the TBAC this week combined, might end up being around 9-10% of US GDP for 2026.

Something that is pretty telling in FX right now is, despite so many things going in the dollars favor this year: - Fed rate cuts priced out - AI capex crushing expectations - A global energy shock - Relative US growth outperformance The Bloomberg dollar index is down 1.5% YTD.

USDJPY has already retraced almost 40% of its intervention move.

Something that's made this energy move very challenging for fixed income is that X-asset has not shown a lot of "interest" in equilibrating this move. Equites care about AI and FX hasn't moved. Markets need a place to equilibrate this shift and right now its all going to rates.

The Taiwan GDP growth stats are pretty surreal for an economy that is $800b in size. Last 3 quarters: - 13.69% - 12.65% - 8.42% For context, the G10 average is 1.5-2% over the same period.

FX trading has become more and more dominated by the size and activity of domestic pension funds. For many FX pairs now, this has become a more important (PC1) variable than more traditional factors like rate differentials & terms of trade. Don't see this dynamic changing either.

One of the more surprising dynamics to me in EUR rates right now is that the market has shown no desire to do the second derivative trade (growth). In Euribors were pricing 3 hikes in '26 and Z6/Z7 is basically flat (-8bps). The deepest calendar inversion is a mere 13bps (H7/H8).

Possibly because I'm bitter, but it's wild to me that the BoJ is not hiking next week with this backdrop: - USDJPY at 160 - Brent at 105 - Nikkei at 60k - March Summary of Opinions was very hawkish - April OIS was 17bps 2w ago Despite all of this, they will do a "hawkish" hold.

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.

Bit of an announcement. Cheap Convexity 2.0. cheapconvexity.substack.com/p/cheap-conv...

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.

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.