DC Lite #303

"QT is about to turn from relying on sharp reductions in money fund RRPs to banks reducing their deposits"

Author

Daily Chartbook
February 18, 2025

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1. Quantitative tightening. "QT is about to turn from relying on sharp reductions in money fund RRPs to banks reducing their deposits (reserves) ... the resulting dynamic of significantly fewer bank reserves is a prescription for higher inflation, higher real yields and, given the Fed’s likely lag in reacting, a steeper yield curve raising 10Y yields."

2. Gold vs. "First gold started beating cash, then it started beating bonds...and next beating stocks?"

3. Smart vs. Dumb Money. "A strong signal of stock-market downside risk is when hedge funds are going short yet retail money is still pouring in. That’s the case today."

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4. European defense. "EU politicians are in discussions to improve their defense, while there are even proposals to allow common European borrowing on weaponry ... It’s an ill wind, but it’s made European arms one of the hottest sectors on earth."

5. Earnings revisions. "Despite the resilience of economic data and stock prices, the 'average' stock in the US is seeing earnings revisions lower."

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