#1391 Darius Dale | How Japan Broke Bitcoin and Stocks!

— Japan's yen carry trade unwinding due to rate differentials between Japan and other major economies, creating global financial volatility and contagion risks.

— The Federal Reserve is behind the market's expectations for rate cuts; markets are pricing in 215 basis points of Fed cuts over the next 12 months versus only 74 basis points of tightness relative to the Taylor Rule.

— A weaker US dollar resulting from Fed rate cuts would support global liquidity and cross-border lending through the euromarket, benefiting major capital exporters like Japan, China, and Germany.

— 42Macro's grid model projects US growth will decelerate (deflation regime) but forecasts higher GDP than consensus; recession risk remains limited over the medium term.

— Inflation is expected to bottom in Q4 2024 and accelerate in early 2025 due to base effects and the historically lagging nature of inflation in the business cycle.

— Trump administration policies (mass deportation and tariffs) pose significant upside risks to inflation and downside risks to growth if implemented, whereas a Harris administration likely means policy continuity.

— Fed funds futures show markets expect rate cuts much faster than Fed guidance suggests, with 215 basis points priced in over the next year.

— US dollar has experienced sharp recent depreciation driven by unwinding carry trades; a sustained but gradual dollar decline would support global liquidity without triggering financial instability.

— Stock market and Bitcoin both show neutral signals in 42Macro's weather model for the next three months, suggesting baseline risk-adjusted returns are expected.

— Global liquidity remains positive, with unemployment rate projected to decline; defensive leadership likely in equity markets as growth slows.

— Treasury yields moving in lockstep with Fed funds market expectations, showing synchronized repricing across bond and currency markets.

— Investors should monitor endogenous market risk (fund unwinds triggering cascading losses) rather than rely solely on exogenous economic forecasts; current signals suggest caution until risk management indicators improve.

— A gradual dollar decline combined with slowing but resilient US growth presents a favorable setup for global asset markets, particularly those benefiting from cross-border capital flows.

— Position defensively for Q4 2024 through Q1 2025 as growth slows and inflation base effects emerge; inflation re-acceleration in the first half of 2025 could become a material headwind if recession is avoided.