🥛 We’ve reached a macro turning point ↩️

GM, this is sneak peak at the first ever Milk Road Macro PRO Report. That’s right, you can thank us later 😉 

We’re in the middle of a key turning point in the macro picture.

Key turning points only occur maybe once or twice a year.

A number of variables are pointing towards a positive medium-term picture for risk assets like stocks and bitcoin.

And seeing as this is the first ever edition of Milk Road Macro PRO, we’ve decided to deliver macro data in BULK, to mark the occasion.

We’re talking 30+ charts from across the macro landscape!

Everything from liquidity to the business cycle to sentiment and positioning.

The purpose is to zoom out and think bigger picture about where the market is and where things might be going over the coming months.

Ongoing news events like the Middle East war and trade deals often distract us from the bigger picture. 

Today, we'll remove the distractions and look at what the data is telling us in terms of where asset markets might be heading next.

Let's start with the biggest driver of markets, liquidity.

LIQUIDITY

Liquidity remains very constructive across the board.

The dollar has weakened considerably since the start of 2025.

This is liquidity positive (I explained why here) and generally leads risk assets by 1 to 4 months.

This leading inverse relationship is still signalling higher prices to come for US stocks, if the correlation holds.

And it’s the same picture for bitcoin.

Gold, on the other hand, generally moves coincident with the dollar.

Gold moved strongly upwards earlier this year at the same time as the dollar was tumbling.

But it then stopped rising when the dollar stopped plunging in late April.

This dollar weakening has caused popular dollar-denominated “global M2 money supply” measures to increase further.

With risk assets following along on a lag (so far).

The long-term dollar-denominated “global m2 money supply” cycle is now also picking up due to the recent dollar weakness.

Below you can see it overlaid with the S&P 500 year-on-year (YoY) percentage change.

And here it is overlaid with bitcoin YoY percentage change.

A note on the dollar:

Positioning has swung violently from ultra-long in early 2025 to ultra-short currently.

Everybody is now bearish on the dollar.

I would think this is likely to be a contrarian indicator.

The dollar may be due for at least a correction upwards, or a period of consolidation, in the coming weeks - now that everybody is short.

Due to the inverse correlation with risk assets discussed above, this could then feed in to become a headwind for risk assets in a few months time.

Bank of America analysis shows Fund Managers are the most underweight the dollar since 2005.

Goldman Sachs analysis indicates dollar short positioning is extreme.

Only matched by one other occasion since 2014.

That was early 2018, which marked a multi-year low in the dollar.

Switching to central bank liquidity, Federal Reserve Liquidity has essentially been largely flat over the past few years.

This is because the Fed’s ongoing Quantitative Tightening has been “negated” by various “stealth QE” measures, including more than $2 trillion moving out of the Fed’s Reverse Repo facility (more information here).

We are currently in a small localised “upswing” that started on January 1 2025 (roughly +$470bn so far) - which is generally supportive for risk assets.

This is being caused by a draining of the Treasury General Account (TGA) as the US Government has hit its debt ceiling.

The Government is using its “savings” (TGA) to fund spending, pushing “new” liquidity into the market and pushing up bank reserves.

This current Fed Liquidity “upswing” will continue until a new debt ceiling agreement is reached, which will likely be some time between July and September.

Net Federal Reserve Liquidity will then start falling as the Treasury “refills” the TGA.

This TGA rebuild process could become a headwind for risk asset markets, as the Treasury floods the market with hundreds of billions of dollars of new debt to replenish the TGA.

The TGA rebuild process could also put upward pressure on long-term US Treasury yields.

But “liquidity boosting tools” are being prepared, including a likely adjustment to the Supplementary Leverage Ratio (I explained the TGA rebuild and the SLR in more detail here).

The People’s Bank of China (PBoC) aka: the central bank of China - has also been injecting liquidity into Chinese money markets.

In December 2024, the PBoC made a rare move in officially changing its monetary policy stance from "prudent" to "moderately loose".

Since then, the PBoC has injected more than 8 trillion RMB (more than $1 trillion) into Chinese money markets, according to Crossborder Capital.

The PBoC should have “breathing room” to continue injecting liquidity as the dollar has weakened so rapidly.

China was likely curtailed from adding liquidity in 2024 due to the strength of the dollar and the need to keep its currency strong.

China needs to stimulate, because its economy is faltering and is verging on deflation.

China is integral to the global economy - so Chinese stimulus is good news for the world economy as a whole.

Back in the US, private liquidity creation is also expanding.

Bank credit is flowing at the fastest rate since early 2023.

Liquidity is also still being bolstered on an ongoing basis by a continuation of “Yellen-omics”.

This is a technical subject, but I will do my best to explain it.

Previous Treasury Secretary Janet Yellen leaned heavily on a special trick to funnel liquidity into markets.

She dramatically shifted the Government’s “debt issuance mix” away from longer-term debt and towards short-term Treasuries (T-bills).

This type of “bill financing” is generally stimulative to the economy and asset markets.

It is thought of as a textbook “debasement” tactic.

Heavy T-bill issuance can at times resemble a form of light “debt monetization” or “money printing”, because bills are often financed through balance sheet expansion by financial institutions.

This tactic also means issuing less long-term debt, which crimps the supply, suppressing long-term yields.

Current Treasury Secretary Scott Bessent previously hammered Yellen for her controversial debt issuance switch, directly accusing her of “stimulating markets” in the run-up to the 2024 election.

But since taking office earlier this year, he has continued with her tactic of leaning on short-term debt.

The next “forward guidance” we will receive on this debt issuance strategy will be the Treasury’s Quarterly Refunding Announcement in mid-July.

I expect it’s likely that this stimulative “heavy bill financing” will continue.

In a recent interview, President Trump said: 

“What I’m going to do, is I’m going to go very short-term - like six months.”

“Wait until this guy [Powell] gets out, get the rates way down, and then go long-term.”

What he’s telling you here is that the plan appears to be to continue issuing lots of very short-term debt, or T-bills, (liquidity positive) until Fed Chair Jerome Powell’s term ends in May 2026.

And then appoint a dovish Fed Chair who will lower rates quickly, allowing the Government to begin to “term out the debt” and issue more long-term debt.

FINANCIAL CONDITIONS

Financial conditions tightened considerably through March and early April as the tariff war intensified.

My financial conditions index rose (tightened) to its highest level since the 2020 pandemic disruption.

But it has since fallen (loosened) significantly.

It’s now officially back to “loose” (green: below zero) again.

Although, we haven’t yet reached the same levels of “looseness” that we saw through large parts of 2023 and 2024.

Here’s a deeper look showing the four separate components (VIX [red], MOVE [green], credit spreads [orange and purple]).

The ongoing Middle East conflict barely made a dent in financial conditions - compared to the huge “tariff spike” we saw in April.

If we can remain “loose” over the coming weeks and months, it bodes well for more upside price action for the S&P 500.

 And it also bodes well for more upside price action for bitcoin.

WHERE ARE WE IN THE BUSINESS CYCLE?

Many people believe we are still in the same cycle that started in early 2023.

This is largely due to business survey measures such as the ISM Manufacturing PMI.

The lowest recent reading on the PMI was June 2023 and we’ve been grinding upwards ever since - but largely remaining in “contraction” (below 50).

This is now one of the longest periods of time spent below 52 in history.

But maybe there’s another explanation.

I would argue, looking at market-based measures of the business cycle, that we have actually seen a “short and shallow” full cycle between late 2022 and early 2025.

And now a new one is potentially emerging.

My Global Economy Index (GEI) failed to reach the peaking zone (green) in recent years, and dropped all the way back down to the “troughing zone” (red) in early 2025.

The recent GEI rise has been fueled by rising commodity prices, rising freight rates (shipping costs) and a weakening dollar.

GEI generally leads risk asset prices by anywhere between 0 and 6 months.

It’s currently painting a positive picture for US stocks:

And bitcoin:

There were clear signs the cycle was slowing big time in late 2024/early 2025 (this was the time to panic from a risk asset perspective).

Now, however, the cycle is looking very strong again and is bouncing back.

A new typical GEI cycle of an average length would be expected to peak roughly around late 2026.

TARIFFS

On July 9, we have the expiration of a 90-day pause on elevated "reciprocal" tariffs imposed by President Trump.

These tariffs, announced in April 2025, were temporarily suspended to allow time for negotiations with various trading partners.

My views on this are that the market is already currently pricing in an “effective tariff rate” of between 10% and 15%.

The market has “digested” this, and risk assets like US stocks and bitcoin appear to be content with this tariff rate, judging by recent price action.

It’s possible that, following this July 9 tariff deadline, tariffs could be ramped up again.

I currently don’t think this is likely, however.

I think the Trump administration was scarred by the extreme market reaction to “Liberation Day” in early April.

They were forced, largely by the bond market, into a quick tariff u-turn, and I think it’s unlikely they will ramp tariff rates back up again to previous high levels.

Although this is a risk event to be aware of.

U.S. ECONOMY

In the past few months we’ve seen a very big pivot in the expected policies of the Trump administration.

We’ve moved from: DOGE cost-cutting, drastically reduced spending and slashing the deficit.

And now we’re at: DOGE barely making a dent, continued huge Government spending and deficits likely to remain roughly 6-7% of GDP moving forward.

I believe this is the biggest “narrative shift” since COVID.

And we see US equity price action behaving similarly to 2020.

(I’m not necessarily predicting price action will continue to behave like 2020, I’m just pointing out the extreme price action so far.)

Running huge deficits is stimulative to asset markets.

It’s also extremely difficult to fall into a recession when the Government is simply spending so much money on an ongoing basis.

We saw a “growth scare” in the US earlier this year with measures of economic conditions deteriorating rapidly.

US growth nowcasts (Augur Infinity below in blue) and CESI Citi Economic Surprises Index (green) both plunged.

But the growth scare appeared to stop “growth scare-ing” around early April and both measures have bounced back/stabilized.

For the past three years, the dollar has become a somewhat reliable leading indicator of US economic conditions.

If the dollar strengthens (tightening financial conditions), economic data generally deteriorates on a lag.

And if the dollar weakens (loosening financial conditions), economic data generally improves on a lag.

So, if this correlation holds, we should see improving US economic conditions ahead.

Here, I have added Dollar Index 3m change (inverted) and shifted it forward by four months.

Recession expectations have collapsed from elevated levels earlier this year.

We’re now back to 2024 levels (recession very unlikely).

Indicators are pointing towards an upturn in the business cycle and improving US economic data ahead.

However, it’s likely this will also come with more inflationary pressures.

We are seeing commodity prices (food and energy) rising across the board in recent weeks.

Freight rates (shipping costs) are rising globally.

Private credit creation in the US is booming.

It feels to me a little bit like a “mini covid” style “stop-go” for global trade - with the stop being “Liberation Day”, and the “go” being the walkback of tariffs.

We’ve seen a sort of “mini-reset” and now the global economy has been jolted back to life.

None of this looks very recessionary to me (despite what the doomers might tell you).

But it's also looking like it might add to inflationary pressures in the months ahead.

CPI in the US (2.4%) is still hovering way above the Fed’s official target of 2%.

The market is currently pricing in two 25bps Fed rates in 2025, with the first currently priced for September.

We may be in a situation in the coming months where CPI is well above 2% and potentially rising, but the Fed is cutting rates again.

An unspoken acknowledgement that the Fed has essentially ditched its 2% inflation target.

This could be rocket fuel for risk assets, but terrible news for bonds…

A similar situation to the second half of 2024 - inflation rising (but not soaring) and Fed rate cuts = good environment for risk assets, bad environment for bonds.

But before we get into rising bond yields, do yourself a favor. Take a breath and blink before you go cross-eyed from all these charts.

And don’t forget that starting in August, Macro PRO will be a paid subscription and reports like these will be for Macro PRO Members only.

But if you upgrade to Crypto PRO this week, you’ll be automatically upgraded to PRO All Access, unlocking Crypto, Degen and Macro PRO all for the price of one subscription ($25/month $250/year)

After July 1, it’ll be $100/month (ouch!). So this weekend is your final shot to lock in 3 PRO subscriptions for the price of one.

Now, let’s get back to bond yields…

WATCH OUT FOR RISING BOND YIELDS

The bond market is one thing that could put the skids on risk asset strength.

Rising yields are historically a bad sign for risk assets generally.

We have seen in recent years that above roughly 4.5% on US 10-year Treasury yields (yellow line) could be a “tipping point” for risk asset weakness.

I think this is something to watch closely.

If inflation does pick up again in the coming months, this will likely put upward pressure on yields.

The TGA rebuild process mentioned earlier may also put upward pressure on yields.

The good news, however, is that the MOVE index (Treasury bond volatility) is currently low.

I only consider big bond yield moves “scary” if the MOVE index is also rising.

In early April amid the tariff chaos, we saw Treasury yields ripping higher, and the MOVE index also ripping higher (a sign of a “disorderly” bond sell-off) - with risk asset princes plunging.

This caused legitimate concerns for financial stability, and forced President Trump to abruptly u-turn on tariffs.

If bond yields rise but the MOVE index remains relatively low, I would see this as an “orderly” bond sell-off, and this wouldn’t be as concerning from a risk asset perspective.

POSITIONING AND SENTIMENT

Most positioning measures indicate that there’s a lot of big money “on the sidelines”.

They’ve missed the rapid V-bottom in equities and are underallocated, and major US stock indices are now hovering around all-time highs.

(Ironically, most measures show retail flows were strong through April, indicating that the retail crowd “bought the dip” while institutions were panicking. Has retail pulled off an unlikely heist on the big money?)

Sentiment measures also have plenty of room to move upwards, after falling to massively pessimistic levels in April - and are a long way from “complacent” levels.

In my view, these current positioning and sentiment levels increase the chances of a further melt-up, or add to buying pressure if we do see a correction in risk assets.

Here’s a few positioning and sentiment snapshots:

Deutsche Bank Consolidated Equity Positioning is still significantly “underallocated”.

S&P 500 futures positioning also shows Asset Managers and Hedge Funds are still significantly “underweight” US equities.

The AAII survey measures US investor sentiment weekly.

This shows sentiment has moved out of traditional “bear market” territory (it’s above levels seen during the 2022 bear market), but there’s still a long way to go until investors become “complacent” again.

The Advisor and Investor Model (AIM), a sentiment composite that aggregates several widely followed surveys, has recovered from one of the most pessimistic conditions in history.

But, again, still a decent way to go until we reach extreme complacency levels.

AIM has cycled from below 2% to above 50% in recent weeks.

Similar shifts in the AIM saw the S&P 500 rise 93% of the time over the next twelve months.

Bank of America’s Fund Manager Survey also shows sentiment recovering from April, but still miles away from complacent levels.

Plenty of room to run.

THIS IS A GOOD ENVIRONMENT FOR RISK-TAKING

We’ve seen a “v-bottom” from the April lows in risk assets like US equities and bitcoin.

Liquidity is constructive, financial conditions have eased and the business cycle may be turning up.

Another signal I’m watching is Cathie Woods’ ARK Innovation ETF (symbolizing the more speculative end of US equities).

It’s been ripping higher and beat the S&P 500 to a new all-time high.

This is absolutely not something you would expect to see if the stock market was likely to roll-over hard.

It’s a strong signal of “animal spirits” and investors moving out along the risk curve.

However, performance in risk assets generally has been extremely strong off the early April low, and some technical measures indicate overbought conditions/bearish divergences locally - so a technical pullback/consolidation might be in order in the short-term at some point.

But I think “the low” is very likely in (early April) for risk assets generally and any significant dips will be bought, with positioning and sentiment still subdued.

I believe the macro factors we’ve run through point to a positive picture for risk assets in the coming months.

The two main risks I see are the TGA rebuild, which could start at any point from July, and the tariff deadline day, which is also in July.

Summer months can often be low volume and choppy.

So the near-term could present a tough environment to read.

Although, having said that, July is historically a very strong month for the Nasdaq (below is a 25-year seasonality chart for Nasdaq).

But risk assets are skewed to the upside, in my view.

A continued “melt-up” is a very real possibility.

Never underestimate the power of “performance-chasing” for underallocated institutional investors with end-of-year bonuses on the line…

KEY TAKEAWAYS

After this deep dive into the macro landscape, here's what's crystal clear:

👉 We've hit a genuine macro turning point.

The liquidity picture is shifting dramatically. The dollar's weakening has unleashed global money flows, China's pumping trillions into their system, and even the Fed's stealth liquidity measures are adding fuel to the fire.

👉 This is most likely not another fake-out rally.

When you see positioning this bearish (fund managers most underweight the dollar since 2005) while fundamentals are actually improving, that's when the real moves happen. The business cycle indicators are flashing green, and financial conditions have loosened significantly from those scary April levels.

👉 Risk assets are setting up for a proper run.

We're seeing classic signs of early-cycle strength: ARK beating the S&P to new highs, retail buying the dip while institutions panic-sold, and sentiment still nowhere near complacent levels. This screams "more upside ahead".

👉 But stay alert for these risks:

July could get spicy with the TGA rebuild process and that tariff deadline. Bond yields hitting 4.5% would be a serious danger for risk assets. Summer months tend to be choppy anyway.

👉 This feels like 2020 vibes all over again.

Massive government spending, liquidity everywhere, and a Fed that's basically given up on their 2% inflation target. That's rocket fuel for assets, even if it's terrible news for savers.

The macro stars are aligning for a proper melt-up. We might see some technical pullbacks, nothing goes straight up forever but any significant dips will likely get bought hard.

Performance-chasing season is about to begin, and with institutional money still sitting on the sidelines, we could see some serious FOMO buying into year-end.

Catch you next month for another macro deep dive.

In the meantime, I’d love to know what you thought of today’s edition: