CoreMacro
BCA’s flagship global macro and investment strategy platform, helping investors anticipate regime shifts, connect signals across regions and asset classes, and navigate the world’s most difficult macro questions.
We see two risks that could spoil the rally in US risk assets: (1) a tariff-driven stagflation, and (2) a US Treasury tantrum. Our negative view on EM risk assets is primarily driven by the outlook for global trade, which is set to shrink in Q4 this year.
Today’s PCE report was broadly in line with expectations. Real consumer spending rebounded in July but remains only 0.3% above where it was in December.
Investors will be scrutinizing Nvidia’s earnings report tonight for signs of cracks in the massive, ongoing AI capex boom. I understand the temptation to do so, but I am not certain that capex is the best metric to focus on.
Economic activity plainly slowed in the first half, led by decelerating consumption and payrolls growth, but financial markets didn’t care. If the next two weeks of data don’t indicate that the May-June slowdown stretched into July and August, we will likely drop our defensive recommendations.
The AI boom has had less of an impact on the economy than widely believed. This may eventually change, but the risk is that investors grow impatient before it does.
EM sovereign and corporate credit spreads are set to widen. Within a global credit portfolio, maintain a neutral allocation to EM credit markets versus US corporate credit. Favor EM local currency bonds over EM USD bonds.
The Norges Bank will cut rates only once until year-end as the NOK weakens and inflation hovers around 3%. Expect aggressive easing next year as the economic recovery is delayed by weakness in the energy sector and the labor market deteriorates.