CoreMacro

Special Report

Macro investors are often preoccupied with the demand outlook in different economies but pay little attention to supply-side dynamics. This report presents our unique framework for analyzing EM local rates, which incorporates evaluating economies’ supply side.

In this week’s report, we defend four out-of-consensus claims. Claim #1: Underlying inflation in the US is not reaccelerating. Claim #2: The US labor market is set to weaken abruptly. Claim #3: The S&P 500 will drop to 3700 in 2025. Claim #4: Japan is not in danger of a currency crisis.

Why the US could get a jobs recession without a GDP recession, as happened in 2001, and what it means for stocks and bonds. Plus, an update on the Joshi rule.

Special Report

US equities generally appear to be overvalued compared to European ones for no reason other than being domiciled on US stock markets. They are also cheap relative to US equities with lower concentration risk, a good long-term buy.

Mainland residents’ investments in gold, other metals, and Hong Kong-traded stocks are a form of capital outflow. Chinese authorities will counter any excessive capital flight with stricter administrative controls. Thus, markets benefiting from these flows will likely be hurt.

Peru is entering a benign macro environment: low and falling inflation amid a solid economic recovery. The country’s balance of payments position is robust, which will help the PEN depreciate by less than other EM currencies. The political situation is on shaky ground, but a regime shift will have to wait until 2026. We remain overweight on Peruvian equities, domestic bonds, and sovereign credit relative to the EM benchmarks.

Wild hopes for US rate cuts got shattered, exactly as we predicted. But given the different incentives that the Fed and ECB now face, the relative pricing between the Fed and the ECB could widen further in the coming months. We discuss the implications for rates, the dollar, and the relative positioning in US versus European equities.

MacroQuant downgraded equities from neutral to underweight on a 1-to-3 month horizon. The model suggests increasing exposure to cash.

We are publishing the chart pack I used during my meetings with clients and prospects in Europe last week. It contains charts on China, global macro, and EM asset classes, all of which are mostly self-explanatory and convey my views and analysis.

The latest edition of our Big Bank Beige Book suggests the expansion remains intact, though weakness in C’s private-label credit card portfolio could be a harbinger of distress among lower-income consumers. We remain tactically neutral with a bias to turn defensive once clearer signs of a recession emerge.