Rate Hikes, Rate Cuts, Quad Opts Expiration

What a week it has been thus far hasn’t it? There is a lot to unpack here and we have global central banks all adding to the multitude of future rate scenarios. This week thus far we saw the FRB keep rates on hold, we saw the PBOC panic cutting the RRR, SLF& MLF and announcing further economic stimulus, then the ECB raising rates by 25bps, to which we cannot fathom why they are slow walking this and not following the FRBs lead here. Then again we all know the global central banks are somewhat working in coordinated fashions, so the FRB is doing the heavy lifting right now, here is the graphic on the ECBs policy moves we shared on our LinkedIn:

We know the FRB is working hard to keep its credibility and their focus on Fed Funds and the short term rate is obviously what the majority of investors look at, but in reality, it is the money supply and liquidity that are the ultimate drivers of inflation.

Magnelibra’s own proprietary liquidity measure of excess sits at $1.7T. Normally we would suspect trouble to arise, should equities really rise or if the RRP falls to $1.7T or lower. The equities are key and if they rise significantly the higher they go the more leverage and liquidity required to keep that price elevated.

Now we know what the PBOC is doing and the BOJ for that matter. We know levered carry trade players are shorting the hell out of those currencies and buying USD assets, plain and simple! We agree with these moves and its why a lot of US investors are late to the party to understand this rally, about 1/10th of 1% understand the carry trade!

Yes we know its come a long way, in fact one look at this current September SP500 futures chart and you can see we are at some very significant technical levels: