CoreMacro

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.

We are closing our tactical long position in the S&P 500 that we initiated on April 8th at a S&P 500 index level of 4983 in the report Tactical Buy Triggers Activated | BCA Research.

Are bunds the new Treasurys? The euro and German debt are gaining favor as safe havens, but markets may be overplaying the shift. Our latest report dissects what's durable, what's not, and how to trade the dislocation.

Although the sell-off in the US dollar and relative outperformance of non-US stocks will pause over the coming months as a global recession begins, the fading of US exceptionalism will still cause the dollar to weaken and US stocks to underperform over a multi-year horizon.

Bessenomics has failed so far. The key pillars of Bessent’s policy mix – achieving lower interest rates and robust economic growth – have been severely jeopardized. The US dollar has depreciated for different reasons than Bessent had envisioned and has pushed up long-term US bond yields. A trade deal between the US and China will likely come too late to preclude a major downshift in global growth.

Amid the storm of global financial uncertainty, Argentina stands out as a free-market safe haven. The lifting of currency controls was the last step taken by this country to embrace market mechanisms. We recommend that investors buy Argentine equities, sovereign credit, and domestic bonds, and overweight Argentina within EM equity and fixed-income portfolios.

The European economies are facing a major deflationary shock. We recommend that investors stay long a basket of Central European (CE3) domestic bonds. They should also upgrade CE3 bonds and stocks in their respective EM portfolios.

The policy-induced decline in consumer confidence has spread to businesses and investors, increasing the probability of a recession even if the administration reverses field on its aggressive tariff measures. We reiterate our defensive asset allocation recommendations.