GeoMacro
A blend of geopolitics and macro, synthesizing the new and old macro to generate alpha and identify the beta through probability-weighted market views.
Harris picked Walz to patch up her weak side in the electorally vital Midwest. But the US election will continue to weigh on risk appetite, stocks, and high-beta assets because the odds of a single-party sweep are at least 50%, probably higher. Policy uncertainty and risk premiums will rise, not fall, in the coming months.
GeoMacro team partners with BCA’s Emerging Markets Strategy to examine political reforms in Argentina. Our colleague Juan Egaña argues that the time is not right to go long Argentinian assets and that Buenos Aires must avoid the mistakes of the Macri era: opening to foreign capital flows too soon without addressing structural macro imbalances. However, the Milei administration is on the right path with potentially global implications.
The decision by GeoMacro team on July 2 to short USDJPY and underweight equities has proven to be prescient. We still do not like the market setup from here on out. A recession would, obviously, be negative for risk assets. But even if investors avoid that scenario, the transition from cash- to leverage-driven growth is unlikely without a significant Fed rate-cutting cycle.
The war in the Middle East is expanding, upgrading our subjective odds of a major oil supply shock to 37% and underscoring our 60% odds of Republican victory in November. Volatility should spike again as investors contemplate the prospect of rising oil prices amid slowing US and global growth. Tactically investors should stay overweight energy stocks relative to other cyclicals and favor oil producers in the Americas rather than Middle East.
Republicans are favored but the election is still competitive. Equities, corporate credit, and cyclical sectors will fall until policy uncertainty is reduced.
Investors should focus on growth concerns rather than the “Trump trade.” Bond yields will fall in the short run due to cyclically disinflationary economic slowdown, rather than rise in anticipation of a Republican full sweep and inflationary policies, which are likely but not yet a done deal.
President Biden has announced his withdrawal from the presidential race. The news will no doubt come to dominate the news cycle in the upcoming week of July 22, which is unfortunate as it will drown out some important developments from the preceding week.