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there is something big happening in the
world's markets right now it began back
at the end of November and it continues
to grip the world as 2025 begins even
the stock market if you can believe that
we've seen foreign rates crash and
currencies collapse markets everywhere
picked up on this abrupt shift and
haven't let it go ever since we do have
a couple of suspects to go on everything
from monetary difficulties to sudden
Financial risks in places like China
macro deterioration the US labor market
and even the possibilities that might
arise over the return of trade Wars
that's one we do have to consider what
we do know is that starting during the
week of Thanksgiving it's as if someone
flipped a switch and Unleashed chaos
onto November Brazil's real India's rupe
massive flight to Safety in China most
of all a reverse in the US dollar swap
Market in other words 2025 begins in the
shadow of whatever it was at the end of
November 2024
and with last year done we can now see
how those markets treated the major
developments that came up in the final
months of it how those were considered
leads us to evaluate the November
suspects therefore 202's
prospects from rate cuts to the Trump
trade and yes the possibilities of the
trade War we've all had enough time
since they've happened to digest what's
happened to start drawing some major
conclusions and that starts with the
interest rate swap Market especially
esally at the short end because the
short end of the swap curve did for a
Time price the Trump trade The Five-Year
swap tread maturity that one was
dropping sharply through the summertime
along with everything else as the
economy in the United States looked like
it was heading for immediate trouble and
that didn't stop after September and
October even though the Federal Reserve
shifted its position quite a bit so the
big drop in the swap spread nothing good
basis points on November 4th so nothing
good from the tenure either now there
was only a moderate backup in
retracement in the 10 10 year spread it
got to minus 47 basis points by early
November so less than five basis points
of a of retracement much less of
enthusiasm over the Trump trade at the
longer dated maturity and then you go
out to the 30-year maturity that one
again record low minus 86.2 basis points
November 4th had been screaming lower up
until the election nothing good from the
swap Market at any of the maturities
included the long-dated one and then
less of a rebound after November 4th so
not much of a Trump trade necessarily in
the longest dated swap more of in the
introduction of some positive volatility
even though the previous Trend was
mostly intact so the entire swap curve
from November 5th onward over the couple
weeks afterward was at least considering
the Trump trade and what the incoming
Administration might do more toward the
short term rather than the long term
that maybe some new policies anything
different was considered to be a
positive given the pro the how the
economy evolved over the last several
years but it was mostly limited to the
short run at least the swap Market view
of it was maybe there would be some
short run impacts but when you go to the
longer data swap spreads especially the
30-year maturity it really wasn't
pricing so much of a possibility of a
long run shift in all of the negative
potentials that have developed over
2024 it was really mostly in the short
run the five-year and even the the
two-year swap spread where you see at
least for the for a little while some
consideration over the Trump trade and
other indications too especially longer
term indications like the copper to gold
ratio you don't see any real deviation
there either in fact the copper to gold
ratio didn't actually hit its its
multi-year bottom until later in
November so as of the end of 2024 the
beginning of 20125 the copper to gold
ratio is right back down where it was
just a couple weeks ago essentially
there's not much of a trump trade any of
the long run indication so whatever
positives that the Trump Administration
might bring to the short run they were
not shared at least the optimism wasn't
shared by the longer term indications in
the swap Market or copper to gold and
other places as well and even the short
run swap spread that one turned around
at the end of November anyway this is
the date that we keep coming back to
over and over again at least this this
couple dates at the end of November
right around November 26 and 2 7th we
see that in the 5year swap spread
maturity as I mentioned but also in
things like you know dealer inventories
of treasury bills that were building up
the week of Thanksgiving entering the
first week of December I talked about in
a previous video the t- bill auctions
that followed immediately after that
December 5ifth in particular you had
that massive surge in bids for the
8-week auction so we've got dealer
inventories 8-week auction to build the
four-week auction of bills after that so
potentially some collateral disruptions
that developed the week of Thanksgiving
into the first week in December and all
that was ahead of the November payroll
report which introduces another angle
which is US macroeconomic risk because
the payroll report contrary to most
mainstream assessments was not a good
one neither the headline nor the details
especially the rise in unemployment rate
and the drop in the household survey so
the end of November entering December we
see us macroeconomic risk really come
back as well and then maybe the biggest
one November 27th we see a real downturn
real acceleration to the downside in
Chinese bond yields now those were
already going lower October into
November after the failed bazooka but
they really accelerated to the downside
after November 27th so same as the
fiveyear swap spread maturity as well as
all the stuff going on in collateral in
terms of treasury bills and I just
mentioned plus then you got the massive
flight to safety at the front of the
Chinese government Bond curve the
one-year maturity which absolutely
plunged into December so some really
serious degree of financial chaos in the
Chinese market that began around
November
27 and over the last week or so the
one-year maturity has retraced some of
its plung and yield but only a small
amount which means that the one-year
maturity is down big time during
December and even the 10year maturity
which which was just accelerating after
November 27th that finished up last year
2024 at a record low below
1.7% so something big happened in
China's bond market from November 27
forward and of course that date or those
dates around the 27th the 26th and 27th
also show up in the currency markets
that we've been talking about a lot in
December especially Brazil as well is
India and there's a couple others as
I'll mention here in a
second there was wasn't so much in
China's Yuan Yuan was relatively stable
and actually moved up a little bit
November 29th but then there was a
pretty big drop from November 30th
through December 3rd which is again that
same same window that we keep seeing end
of November into December where the Yuan
went from 724 to the dollar down to
72850 and it has since continued lower
to the point that somebody in China is
intervening in the currency markets to
keep the Yuan right the onshore Yuan
right at 730 to the doll actually just
above 730 to the dollar it's likely
Chinese banks at the behest of Central
Bank Authorities borrowing and swaps
markets and redistributing into the
onshore marketplace and they're also
they're also doing some things in the
offshore Market as well so while there
wasn't a huge reaction in the currency
market for China's Yuan there definitely
was for India's rupee and it's right on
November 26 that was the the peak or at
least the right the point before which
the currency really collapsed so on the
25th the rupee was 8427 and had been on
a very slight short run rise before then
then starting the 26 it just sinks and
it dropped to almost 86 86 to the US
dollar as of more more recently which is
a record low and I've talked about
what's going on in India a massive surge
in foreign debt um The Reserve Bank of
India has expanded an enormous amount of
the of the country's reserves trying to
defend the rupan only making it worse
they've given up on their
non-deliverable forwards stupidity a
whole bunch of stuff going on in India
that I've talked about repeatedly
another one Brazil the real the real was
absolutely crashing when did that crash
start yeah November 26th and November
27th it had been stable throughout the
month of November and then on the 26th
from a a rate of 580 or really almost
581 to the US dollar it just crashed
down to 609 by December 6 so there we go
again final week in November first week
in December it got so bad that on
December 12th the Central Bank there
Bank of Brazil decided that they were
going to hike rates by 100 basis points
rather than 75 as the market expected
plus promising to do it twice more each
one of its next two meetings so big
intervention by Bano and interest rates
the government started to intervene
directly in the spot Market as well as
auctioning off credit so interventions
in the FX markets from Brazilian
authorities the real itself got down to
a low of 626 to the dollar and since
then has stabilized over the last half
of December but it's still incredibly
weak and looking like it's going to move
weaker once the interventions wear off
um as the year ended still around $620
to the US
dollar another one likely a related one
Korea's wand while South Korea has been
gripped by political turmoil the
currency has been weaker far far
predating what's happening in Soul in
other words the currency was been weak
really going back to the summertime
because like a lot of things summertime
was not good for the world uh big
inflection across the global economy
which is likely playing a big part here
U but it really plunged after the end of
September so September 27th there was a
big Plunge in the Korea's wand so again
nothing nothing to do with the political
situation then there was a pause in
November sort of like the rupe and the
real uh between November 12th and nov
nober 27th but then again after November
27 you don't even really see the martial
law or the failed martial law attempt on
December 4th in the behavior and
performance of The W it just continued
to move lower after November
27th so the big question here is what
happened on November 26 or November 27th
in that window the final few days of
November and the first week in December
what was the trigger here we've got a a
couple of suspects I said before
collateral shortage scarcity treasury
bills that kind of thing but also like I
said in the introduction we have to
consider the prospects of trade Wars
because it appears like the market is at
least considering them in some limited
capacity on November 25th
president-elect Trump tweeted well he
didn't tweet he he issued a statement on
Truth social that said in no uncertain
terms he was going to implement tariffs
on day one of administration here's what
CNBC wrote up on the 26th
president-elect Donald Trump plans to
raise tariffs by an additional 10% on
all Chinese Goods coming into the US
according to a post on his social media
platform truth social the post
immediately followed one in which Trump
said his first of many executive orders
on January 20th would be would impose
tariffs of 25% and all products from
Mexico and Canada such a move would end
a regional free trade agreement so it
looks like because that's was that was
the most significant uh at least
political uh development that happened
at the end of November and it seems to
line up with the timing it looks like
there's a possibility the market said
trade Wars is going to be potentially
one headwind to many because I keep
repeating it in this video and every
other one I've been doing that there's
there's been trouble in the marketplace
and the economy all year even before we
get to the election and trade Wars and
Trump trades and everything else so
you've got currencies that are weakening
rates that are falling central banks
that are cutting long before we get to
November so the global economic and
financial climate was not good heading
into into the end of November into
December then Along Comes the prospects
of trade Wars and whether however you
want to view trade Wars or not trade
restrictions and policies the market
looks at looks it appears to be looking
at that and saying yeah this is
potentially one more risk that we can't
abide by it's already bad and this is
just going to make make it that much
worse and that's where the urgency in
all of these markets has come
from but there's also it's that's a
possibility but if that was indeed the
case or the entire case then we would
also see something similar in Canada and
Mexico at the very least the Looney and
the peso but we don't now both the peso
and the Canadian currency the Canadian
dollar have been weakening but they
didn't start weakening abruptly nor did
they shift on November 26 27th are in
that same window and they just continue
to be weak throughout the last several
months and the pay so going back further
than that so if it was just trade Wars
why didn't we see an acceleration
downward in the Looney or in the Mexican
peso maybe just because they're already
weak to begin with and this was just
confirmation of the reason for that
weakness or what we're really saying is
there's likely a combination of factors
here so for the Brazilian re Al for
example a Korea's Wan along with all the
stuff in China it may be that the
prospect of trade restrictions and the
reduction in trade because of that is as
I said just a minute ago it is that it
the Market's saying it's just one more
negative that these places cannot handle
they're already in bad shape to begin
with and this is just going to add one
more that they can't handle it's the
straw that broke the camel's back and it
would make sense in China because
China's in really bad shape despite the
latest non-manufacturing PMI which I'll
get to in a in an upcoming video so
China's already in bad shape we know
trade restrictions are not going to help
the Chinese a situation out any and then
anything Upstream of China from there
including Brazil which has already got
its own massive problems as well it
makes sense that potentially trade Wars
would just be going too far with all of
the negative so China and Brazil and
Korea which is again a complete mess
there especially considering the
potential of the AI bubble to be
reversing here in Asia spefic
specifically trade Wars might be too
much and then as far as Korea and Mexico
like I said their economies are
experiencing their own difficulties to
begin with so this is just another one
another negative on top of a whole bunch
of
others but what I keep coming back to is
in the swap market so you had the
five-year maturity sort of consider the
Trump trade for a couple weeks there
between the election and November 27th
then the 5-year maturity turned around
which I don't necessarily believe that's
about Trump trade or Trump trade Wars
more so I think that has to do with what
the longer dated swaps were saying all
along when not really not really doing
all that much or reacting that much to
the Trump trade or trade Wars either one
longer data swaps are moving in almost a
straight line which is unusual to begin
with because nothing ever goes in a
straight line so the trend lower in
longer dated swaps says that none of the
short-term stuff actually matters it
doesn't matter the Trump election or the
prospects of trade Wars one might be
positive one may be negative maybe none
of them are positive and all of them are
negative doesn't matter central bank
rate Cuts those don't Factor all at all
the swap Market is reacting to longer
term factors which don't appear to have
changed no matter what has happened over
the last few months of 2024 in other
words the swap Market is saying it's all
the downside of the supply shock anyway
and so I think that's what makes sense
explaining all of these fact up to and
including the prospect for trade Wars so
from that perspective the short-dated
swaps they give the Trump trade a shot
and say well at the end of the day it's
not going to make much difference over
the intermediate and longer term so the
the Trump trade at the short end of the
swap curve makes sense well it doesn't
make much difference at the long end
just a little bit of positive volatility
that didn't last the trend's still very
much intact now this is not a judgment
by the markets on those policies or any
ideas it's just that things are so
screwed up that there aren't going to be
nearly enough those policies or ideas
are not going to be nearly enough to
turn it around and turn it around
quickly it may just be that there were
two many negatives all coming together
in one place and at the same time that
all the presumed positives including the
Trump trade as well as stimulus from
China and rate cuts from central banks
those were judged to be ineffective at
best so you put all of these together
the developments at the end of November
across the world across the marketplace
the Baseline behind it all and it led to
a pretty chaotic November and the same
thing happening at the start of
2025 yeah it might even be the stock
market has caught up in all of this
Global shifting that happened last month