• As excess global savings fall and deficits rise, the risk of fiscal dominance increases
• Data related to these flows isn’t real-time, but fortunately, there are market metrics
• Real yields and Primary Dealer holdings are good metrics of supply/demand dynamics
• We are also watching Term Risk Premium and US CDS, both of which are a bit worrying

• A mismatch between bond demand/supply threatens higher rate risk premia
• Excessive deficits could shift away from monetary to fiscal dominance, pushing R* higher
• Central banks may be forced to sacrifice inflation objectives and financially repress markets
• The fallout would be FX weakness, negative real returns and economic/market volatility

• Huawei quietly launches new 7nm chip 5G phone
• South Korean politician urges US to abandon China chip strategy
• Country Garden’s offshore creditors approve offer to extend maturity of bonds
• China’s internet giants order $5bn of Nvidia chips to achieve AI goals
• Intel to offer foundry services to Tower Semiconductor after PRC stymies acquisition
• China’s Economy Could Rebound in Second Half, Ex-PBOC Official Says, PMIs stronger
• US to enforce maritime law around Palau

If the current narrative is to be believed, as Europe is hurtling towards an ugly recession, the US economy is likely to enjoy a soft- or even no-landing. Hence, it is hardly surprising that all eyes, including ours, are focused on US yields (“MI2 Trader: Short Fixed Income” 2nd Aug).

Between yesterday’s policy statement and Madame Lagarde’s press briefing, the ECB confirmed that, like the Fed, they are operating in an “opportunistic policy” framework.

• Social pressure, geopolitical tension, and lax fiscal control are increasing funding needs
• These trends aren’t new but hadn’t been an issue because of Central Bank QE
• As these dynamics reverse, debtors must turn to the pool of global savings for funding
• Unfortunately, this supply is shrinking as populations age and money is deployed at home

For some time, we have held the view that the setups in bond and equity markets are mutually exclusive and following on from our synthesis of prevailing macro conditions, we published a piece in August focusing on the rate-sensitive Nasdaq and homebuilders. In response to the piece, we got several interesting questions from clients regarding our idea that the homebuilders looked vulnerable. Therefore, we decided to share them with you via a series of charts along with our updated thoughts on housing and the builders.

We apologise for interrupting your summer break. However, we believe that there are some really important macro trend developing that could accelerate into Q3/Q4. Therefore, we have prepared a short 40 minute video updating our latest thoughts on the macro and markets.