Disclaimer: The following content is an archive of Substantive Research Discovery Trending Themes, as delivered as weekly insights to our paid subscribers. Links to gated content have been removed.
TopDown Charts: Market cycle guide book
Two major macro risk scenarios are basically either recession (and all that comes with that), or resurgence (more inflation, more monetary tightening, steeper recession risks down the track). Each have quite different – but equally treacherous paths.
This generally means taking a more defensive approach, but with a flexible focus on the data and the cycle. Click here.
TopDown Charts: Quarterly Strategy Pack
Big Picture Macro/Market/AA Outlook:
1. Act 2 of Policy Pivot: from excess easing to excess tightening, a monetary brick wall awaits
2. Recession Watch: leading indicators and actual data pulse point to recession as headwinds weigh
3. Inflation vs Disinflation vs Deflation: thinking about deflation risk (and resurgence risk)
4. Risk Radar: from monetary to macro, it’s about flow-on and ripple effects from 2022 (2020?)
5. Growth vs Defence: framework and indicators say bonds have the edge over stocks
6. Global Equities: now that the relief-rally-AI-hype-new-bull is on shaky ground, macro risks again 7. US Dollar & Commodities: USD rebound just that, commodity risks shifted to the bull side. Click here.
Macro Risk Advisors: Market navigator; The technical cross asset set up
A defining moment is at hand for risk markets globally. The weight of the evidence suggests that this is still a buyable decline, but a failure of the S&P 500 to hold 4145 will strongly suggest that the bear market has returned. Click here.
Roth MKM: The rate shock; Are yield levels justified? What’s it mean for equities?
Whether the yield curve dis-inverts here or not, we have moved into a zone in which “bad things happen” to the business cycle given policy lags
Despite the recent pullback, equity markets have become more expensive relative to bonds. Click here.
Forest for the Trees: The global sovereign debt bubble is popping due to the convexity of net effective UST supplies
Consensus does not appear to understand the convexity of net effective UST supplies
There likely are no brakes on the rise in UST yields until either the Fed or Treasury step in with more USD liquidity. Click here.
TS Lombard: Next stop a 6.5% funds rate?
Is a 6.5% funds rate and a 6% 10Y on its way? Very likely
The revival in the employment data, and some of the production indexes as well, imply that the neutral real rate is above 50BP and hence the current level of the nominal funds rate is too low
TS Lombard’s favorite indicator in the employment report is the diffusion index – a number over 50 means more firms are adding workers than laying them off. The median from 1991 to 2019 is 60 and the index has, for the moment, bottomed in July and reversed the recession call. Click here.
Quant Insight: Charts; credit impulse + Tech and yields (Charts only)
Credit Impulse is just a fancy way of measuring the change in overall credit conditions to see if money is becoming easier (positive for economic growth) or tighter (associated with recessions).
And the answer is tighter.
In fact, it’s rare to see credit conditions tighten this quickly.
That’s especially true in the US where only a few precedents (Covid & the 2020 lockdowns; the Fed raising interest rates aggressively in 2022) have produced comparable moves.
There’s no direct trade signal from this kind of analysis.
But it’s safe to say that typically sharp contractions in credit conditions are not friendly for risky assets like equities.
When we look at the NASDAQ, a new regime started to take hold form May onwards (see chart below).
Those little daily movements in bond market volatility were increasingly explaining NASDAQ daily variation, at the expanse of other factors.