Syz the moment

Source: Bull Theory

A €54bn savings drive looks ambitious with growth at just 0.5% and parliament deeply split. Markets show the credibility gap: 10y OATs yield ~97bps more than Bunds; near Euro-crisis highs. Source: HolgerZ, Bloomberg

The Bank of Japan reaffirmed that it will continue raising interest rates as growth and inflation evolve. Yet the yen weakened immediately after the announcement. The market’s verdict was clear: 25 basis points is not enough. Even with the policy rate now at 1.25%, the interest-rate differential remains wide—and so does the incentive to borrow in yen and invest in higher-yielding currencies. If Japan wants to support the yen without hiking more aggressively, it may have to return to FX intervention: selling dollar assets and using its reserves to buy yen. But intervention only buys time. It does not solve the underlying rate gap. The longer the BOJ waits to close that gap, the more aggressive future rate hikes may ultimately need to be. Key details: 1. BOJ voted 7-2 in favour of raising interest rates to 1.25%. 2. BOJ warns underlying inflation could rise above its 2% target. 3. Inflation pressure is spreading from producer prices into consumer prices. 4. Inflation expectations continue to rise. 5. Wage increases are increasingly being passed into selling prices. 6. Weak yen, higher oil prices and strong AI-related demand are adding inflation pressure. 7. Japan’s economy is still recovering moderately, supported by employment, income growth and AI-related demand. 8. CPI is expected to accelerate clearly above 2% from the second half of FY2026. 9. BOJ still says financial conditions remain accommodative despite the hike. 10. Future hikes will depend on economic activity, prices and financial conditions. Governor Ueda’s remarks will be closely watched for clues on the timing and pace of further hikes. Source: Bull Theory

Source: Bull Theory

Source: Katusa Research

Long-dated US Treasury 30y yield (in red) is rising based on the de-dollarization narrative (Fed credibility and/or fiscal fears) Meanwhile, USA CDS (in green) is trading at its lowest level (best credit risk) since before the start of the war... Source: zerohedge, Bloomberg

People say oil is the lifeblood of the economy... But the backbone of our economy runs on diesel: - ~80% of US freight by weight - ~80% of global trade moves by sea - Most farming - Most mining Source: Lukas Ekwueme

As expected, the Fed raised rates by 25 basis points in a unanimous decision The dot plot showed that 16 of 18 participants expect at least one additional hike this year. However, this does NOT appear to be the start of an aggressive tightening cycle. Policymakers do not project further increases in the federal funds rate over the following years. A unanimous rate-hike decision, and large majority also signaling at least one more hike in 2026 hides the reality that 2027 outlooks are massively divided with four members signaling a 'policy error' implicitly with 3 seeing 2 cuts and 1 seeing 4 cuts... The statement and dots were more hawkish than expected overall as The Fed took away the projected median cut next year. October odds initially declined but then jumped (right before Midterms?) to 57% while December odds of a hike jumped to 75%... While noisy, 2027 rate-hike expectations rose to around 40bps (2026 expectations are now for another 30bps)... 👉 Warsh explained that a resilient labour market, persistent inflation concerns and geopolitical tensions had shifted the committee in favour of a hike. 👉He described the hike as removing a degree of accommodation. In practice, the Fed may be reversing the three rate cuts delivered in 2025—leaving room for UP TO TWO additional hikes. Warsh also suggested that intense competition for capital, particularly from technology hyperscalers, may be contributing to higher US bond yields. 🔴 Conclusion: Yesterday’s hike, and potentially another 25-basis-point increase this year, gives the Fed time to see whether oil prices retreat. A third hike could follow in early 2027 if necessary, fully reversing last year’s easing cycle. Source image: zerohedge