BOJ Finally pressed the Break AND More....

1. The recent NFP numbers were very encouraging specially because we saw an uptick in sectors that have supply chain issues, which in turn gives us the confidence that now logistics are improving and stabilizing.

2. Bank of Japan's monstrous QE is now slowing with the Abenomics retiring from the economy. As of October 31, total assets, at ¥725 trillion ($6.36 trillion) were down a smidgen from the level at the end of August (¥727 trillion) and have essentially been flat since May. This might have astronomical implications on asset prices, as has been the case when the central banks were adding up to their balance sheets. We didn’t see an impact on consumer price inflation but on asset price inflation. So this time, the balance sheet shrinking ideally should plunge the capital markets.

3. The Fed has doubled its balance sheet over the pandemic, and this created a massive flood of cash in the economy. The idea was to create a wealth effect, wherein people are induced to spend more when they get rich overnight. But the bad news is that when the Fed wanted people to spend more to stimulate the economy, people started saving more and thus with every new dollar in the market there were cents that were saved and thus we have exceeding leakages in the economy.

4. Something very surprising has been happening in the US over the last couple of months. Private investments and consumer spending are both above pre pandemic levels and rising steadily, but the number of people achieving this feat is down by 4.7 mn. This implies that there are people unwilling to join the workforce who are comfortable spending.

5. Last month saw massive SOFR swap volumes traded across all the clearing houses. This is good news for participants who are actively transitioning towards a LIBOR less world. Furthermore, this comes at a time when we have the SOFT first date for the swaption market.

6. USD rates are rising across the curve. This comes with the positive signal by the Fed and other parameters.

7. Since the pandemic, Growth stocks and Value stocks have diverged sharply in their responses to 10-year yields: Value has been benefiting from rising rates, while Growth has been hurt by rising rates. This new relationship suggests a secular shift is underway that will help Value stocks outperform as rates likely continue to rise as inflation expectations eventually reset at a new higher anchor.

8. On a global basis, the International Energy Agency (IEA) anticipates a steep increase in annual energy investment in the global transition to net zero, from just over $2 trillion on average over the past five years to almost $5 trillion by 2030 and moderating slightly to $4.5 trillion by 2050.

9. Across the developed economies the expectation of tapering and rate tightening has risen and this can be seen by the sudden jump in the front end of all the DM yield curves. This time the bond yields are leading the policy action and thus the Fed has to react to the bond market exuberance.

10. An interesting transition from the Central Bank's stance is the acceptance of the fact that inflation is no more transitory, and in response some of the CBs have already started seeming concerned about the true nature of the inflation trajectory.

11. Interesting Charts: