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INTEREST RATES ARE EVERYTHING The #1 macro driver in financial markets is interest rates, rate expectations and what is impacting those expectations. To keep it simple you either have futures pricing in of expected loose financial conditions or tight financial conditions. loose conditions: Markets favorite as it means the liquidity tap is running full pressure pumping risky assets and making the rich even richer tight conditions: Make borrowing more difficult, less liquidity flows into risky assets and more caution around labor market and growth concerns. Many instances where the cartel of the currency cycles between environments for various economic goals. Example of higher rates and tighter conditions to bring down high risk inflation and prevent hyper inflation economic collapse. SERIES OF EVENTS: 1) Reactive catalyst such as trade war, political disputes, real war, pandemics etc that impacts inflation/ growth/ jobs. 2) The fundamental catalyst directly impacts medium and long term expectations of inflation and growth 3) Feds need to assess the catalyst and adjust liquidity environment by holding rates restrictive, raising rates, or cutting rates if situation is optimistic. This also goes in line with other monetary operations like their asset purchase program, market liquidity injections etc. Feds in the example of US pulls the levers that markets adjust order flow to. 4) Markets adjust expectations of the coming Fed environment changes ahead of time based on data outcomes, asset prices, catalyst timelines. 5) Flows change based on this adjustment creating technical trends that can last weeks, months and or years. IRAN WAR EXAMPLE: 1) US and Israel attack Iran sparking middle east conflict and the key factor or blockading Hormuz. 2) Blockading Hormuz a critical global supply chain water way spikes commodity prices such as energy to food and freight costs. 3) This catalyst and pricing changes inflation to spike higher ringing alarms of an energy crisis and leading to more potential hawkish/ tightening adjustments from the Fed. 4) Markets price higher inflation, energy crisis concerns and tighter Fed conditions ahead of time which the impact changes liquidity flows. 5) This series of events leads to 3-4 months of Gold bears, USD bulls, short term stock correction and BTC bears. Where are we now? We were in an interesting phase of 2-3 weeks seeing War in a phase of optimism and diplomacy. This lined up with Trump approaching mid term elections and trying to save face by bringing gasoline prices down and not looking like a war lord. Our prediction was with energy prices lower back to pre war, hormuz blockade removed and mid terms closer to end of year that we can see energy crisis concerns fade and rate cut bets come back to the table for a shift into HTF Gold bulls, USD bears and risky asset bulls. Our only concern was the war firing up again if Hormuz gets closed fully or energy infrastructure gets heavily damaged. Now over the weekend that has taken place which during a tricky HTF pivot point and fundamental driver transition phase is leading to Gold bears, Oil bulls, USD bulls. BUT what we have to ask! 1) How long will Hormuz blockade last this time taking into consideration Trumps concerns with midterms? 2) Will it be enough to increase energy prices back to levels that spike inflation aka energy crisis concerns come back? This week we have CPI and PPI which more than likely is peaked and trending lower as even with some minor war escalations Oil is back to pre war and bearish last 3 weeks as well as Nat gas, manufacturing prices paid down, services prices paid down etc. If the recent escalations are short lived then even a 1 week long spike on Oil will not be enough to raise medium and long term inflation expectations. We just saw more volatility as pricing catalysts for institutions and causing uncertainty amongst mass positioning during HTF pivot point.

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