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CoreMacro | Global
Macro research covering the global economy and markets, investment implications. Typically published four times a month.
While it is impossible to know exactly when global equities will peak, there are now enough vulnerabilities to justify keeping one’s finger near the eject button.
Inflation expectations in the US remain reasonably well anchored and there are few signs of a brewing wage-price spiral. Thus, the near-term risks to growth outweigh the risks of higher inflation. Looking beyond the next year or two, however, we are worried about stagflation.
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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.
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.
We maintain our 12-month US recession probability at 60%. However, until the “whites of the recession’s eyes” are more clearly visible, we would refrain from moving to a fully defensive stance.
We will only move to a fully defensive stance if the “whites of the recession’s eyes” appear. So far, they have not. We will be increasingly looking to our MacroQuant model for guidance on when the next turning point in markets may come.
The fact that the US economy has been slower to deteriorate than in past cycles is entirely consistent with our kinked Phillips curve framework. We will be looking to our MacroQuant model for guidance on when to turn fully defensive.