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.
The easing bias remains, but not all central banks are equal. This Central Bank Monitor update reveals who is ready to cut more and who is still pretending not to.
Taiwan, Singapore, and Korea's currencies might appreciate versus the USD, driven by capital repatriation from domestic private investors away from the US. This thesis is less pertinent to India, Indonesia, and the Philippines because they have large net foreign portfolio liabilities. Malaysia and Thailand fall in the middle, while China is an exception. Investors should play intensifying deflationary pressures in Asia by betting on lower interest rates in the region.
Today, we are introducing an additional ‘high-frequency Joshi rule’ which is updated weekly. The Joshi rules tell us that a US recession is not imminent. Until the Joshi rules are triggered, overweight non-US government bonds, and especially UK gilts, versus US T-bonds. And shift cyclical asset allocation from overweight to neutral-weight bonds. Plus: tactically long USD/GBP and tactically underweight global industrials (EXI).
In the long run, Mexico will emerge as one of the biggest winners of US tariffs as the US diversifies supply chains away from China. In the medium term, however, a US growth slowdown and tariffs will push Mexico into recession. In EM portfolios, we remain overweight Mexican equities, domestic bonds, and sovereign credit. We are reiterating a buy on 10-year domestic bonds. Go long MXN versus CNH.
We apply our systematic approach to investing based on economic, inflation, and monetary policy surprises to the major global bond markets. The economic regimes defined by the current macro-surprises setup confirm our existing fixed-income portfolio tactical recommendations.
Hard aggregate macro data series remain solid, but surveys of businesses and consumers continue to worsen and the list of consumer-facing companies lowering earnings estimates gets longer by the week. We believe surging equities are ignoring the adverse effects of tariffs and reiterate our defensive asset allocation recommendations.
If Trump’s tariffs are ‘America's Brexit’, then UK gilts will recoup ten years of underperformance versus US T-bonds. Meanwhile, as the AI bubble fully deflates, Europe’s stock market valuation versus the US will rerate by about 25 percent. The big ‘currency’ winner of the structural exodus from the US dollar will be bitcoin. Plus: a trade for the next four weeks is to go tactically long USD/CHF.
Despite marginal de-escalation in tariffs between the US and China, a sustainable trade agreement remains elusive. In the meantime, economic damage continues to mount, and Chinese equities have yet to fully price in the tariff-induced growth deterioration.
MacroQuant sees the risks to US growth as being to the downside and the risks to inflation as being to the upside. Such a stagflationary brew justifies an underweight on stocks.