Taproom Takes (1/12/25): This Week in Markets

What drove markets, what cooled them, and what comes next — poured clean.

Quick heads up: This week’s language runs at a slightly higher level. It’s intentional - this Take is for anyone who wants to actually learn markets, not just watch them. If a term feels unfamiliar, stick with it. You’ll grow into the rhythm faster than you think.

MACRO — WHAT DROVE MARKETS THIS WEEK?

1. Yields Drifted Lower — Gently

After months of chop, the bond market finally took a breath.

• Slower payrolls

• Softer ISM services

• Slight up-trend in jobless claims

• No fresh inflation surprises

Lower yields → higher equity valuations (P/E lift).Simple mechanics, big impact.

The market read it as: “Growth is slowing, but not breaking — cuts aren’t urgent, but hikes are off the table.”

2. Liquidity Quietly Improved

This was the stealth driver of the week:

• QT slowed (Fed reducing balance-sheet shrink)

• Treasury cash balances fell (injects reserves)

• RRP stayed low (RRP = where money markets park excess cash)

That combination → easier financial conditions, especially for duration, crypto, gold.

Important: This wasn’t a “liquidity wave” — just enough flow to stop assets bleeding.

3. Rally Rotation — Not Rally Exhaustion

Under the surface:

• Tech cooled but didn’t crack

• Small caps stabilised

• Industrials and cyclicals caught flow

• Financials followed the curve steepening (long yields ↓ vs short yields)

• Defensives faded

This week wasn’t a hype-chase. It was rebalancing + rotation, which is healthier than one-way melt-ups.

4. China Provided Stability, Not Stimulus

China’s signals this week:

• Minor credit easing

• State-directed equity purchases

• Tighter capital controls

• Property-sector micro-measures

Good enough for metals, AUD, and EM tone .Not good enough for a global growth impulse.

Capped sentiment, but avoided deterioration.

5. Europe Stayed Weak — But Helped Global Vol

PMIs weak. Industrial output soft. Germany stuck.

But:

• A dovish ECB = global easing tailwind

• Softer EUR = liquidity helper

• Low vol = higher risk appetite

A weak Europe → a calmer global tape.

6. Commodities Bid — Fundamentals + Liquidity

• Oil firmed modestly

• Copper gained on China micro-support

• Gold held strong (liquidity + geopolitical hedge)

• Iron ore firm on supply tightness

Gold’s behaviour = clean read of the macro regime: slow growth + easing liquidity + low real yields (inflation-adjusted yields).

7. FX Traded Rates, Not Stories

USD moved lower with yields. AUD firmer on:

• iron ore stability

• USD softness

• China not worsening

JPY stable ahead of BOJ commentary.

FX tone = trend, not volatility.

HOW TO INTERPRET IT — THE REAL MESSAGE

This week wasn’t:

• A breakdown

• A regime change

• A liquidity shock

• “The big one”

This was:

• A rotation after a flow-driven period

• A normal cooling after a strong month

• A repricing toward a soft deceleration economy

• A low-vol grind where liquidity quietly improves

• A macro tape that still supports risk (slowly, not explosively)

Emotionally → stay level. Rationally → watch yields, liquidity tone, and PMIs next week.

The regime is intact. The mood just cooled.

Macro Dashboard at a Glance

INDICATOR	Latest	Prior	Δ	Direction	Trend
ISM Services	51.3	52.6	↓	Cooling	Stable
Non-Farm Payrolls	Missed	Prior Revised Lower	↓	Cooling	Slowing
Jobless Claims	Up modestly	—	↑	Loosening	Slow Drift
10-Year Yield	Lower	—	↓	Easing	Bear-steepening
2-Year Yield	Slightly lower	—	↓	Anchored	Softening
Gold	Up	—	↑	Bid	Strong
Copper	Up	—	↑	Bid	Improving
USD	Down	—	↓	Soft	Yield-led
AUD	Up	—	↑	Firmer	Risk-dependent

Overall Economy: Cooling but stable, Liquidity Tone: Improving at the margin, Market Mood: Calm grind, not chase

FORWARD LOOKING VIEW

RATES

• Yields biased lower

• Market still pricing cuts slowly (maybe too slowly)

• Curve steepening continues

• Real yields stay sticky short term

• Risk pullbacks remain yield-dependent

EQUITIES

• Breadth improving but still uneven

• Tech pauses but remains leadership

• Industrials and financials continue to benefit from curve shape

• Small caps remain rate-sensitive

• Vol stays muted unless CPI/employment shock

LIQUIDITY

4–6 week view = sideways grind

• Treasury flows neutral

• RRP changes muted

• Central banks still restrictive (less dovish than markets want)

• Liquidity improvement = Q1 story, not immediate

Source: Michael Howell - https://capitalwars.substack.com/p/the-global-liquidity-cycle

CRYPTO

• BTC consolidation = healthy

• Structural demand via ETFs intact

• ETH rotation building

• Alts selective — no mania, no distribution

• Liquidity-sensitive assets (SOL, L2s) perform best

FX

• USD softer unless real yields rise again

• AUD needs China stability + global risk

• JPY firmer if BOJ tightens tone

• EM FX benefits from liquidity drift

RISK BALANCE

Downside → labour cracks, sticky inflation Upside → inflation step-down + falling real yields

SO IF YOU’RE…

📈 Investing through the noise: Corrections + rotations are part of the process. Consistency wins.

💵 Sitting in cash waiting for a crash: This isn’t the moment. It’s a yield-driven repricing, not a cycle break.

🧠 Worried the rally is over: This is consolidation, not reversal.

📊 Heavy in tech: Expect chop, not collapse. Fundamentals still dominant. AUD-focused: Upside limited until China improves. USD still king.

🪙 Accumulating crypto: BTC strength stable. ETH rotation early but constructive. Patience > timing.

CLOSING SIP

Markets didn’t roll over — they exhaled. Flow-led rallies cool down before the fundamental story catches up. This was a reset, not a reversal.