Global Markets & Economic Data
"Goldilocks fatigue" appears to be hitting markets as bullish speculators require the next batch of positive catalysts to make a leg up in risk assets. Additionally, the spectacular collapse of a US sub-prime auto lender Tricolor is causing some concern in the private credit market.
- US: Both Sep. Services and Manufacturing flash PMIs were in expansionary territory. Aug. New Home Sales hit 800k, above estimates. Q2 GDP was revised up to 3.8% from 3.3%. Y/Y Aug. PCE was 2.7%, inline with forecasts and 0.1% higher than July's reading.
- Europe: UK Aug. Services PMI was in expansionary territory while Manufacturing continued to contract and inflation remains above target with the BOE expecting inflation to peak in September. The Swiss National Bank held rates steady at 0% and sentiment indicators picked up m/m. The Eurozone Aug. PMI composite was in slight expansionary territory.
- Asia: Tokyo CPI fell to 2.5% y/y versus 2.8% previous. Japan's 40-year government bond auction was done at 3.3% yield.
Market consensus is that the dollar is on a downward course versus global currencies. Fundamentally and politically the path lower for the US dollar makes sense because Trump wants a lower dollar and lower interest rates. Unfortunately trading this view has been highly unproductive over the last three months as markets try to handicap how far US rates can fall with the short-biased market positioning serving as a counterweight. Post-Fed last week we are witnessing another reversal within the three-month range. The lack of visibility on Fed policy continues to keep the dollar rangebound, forcing macro FX traders to trade with a tactical discipline to harvest short-term PNL, rather than pressing for a big breakout move downwards.
Market Spotlight: Retail Bulls
- Some fundamentally oriented professional investors are commenting about the wide disconnect between economic realities and the stock market. The stock market is increasingly becoming a poor representation of the real economy and simply a marketplace for speculative activity in a world that remains awashed in liquidity.
- The Fed rate cuts and continued bullish commentary from US government officials appear to be the latest catalyst to spur on another wave of furious buying of stocks with the worst fundamentals in the market.
- Many hedge fund managers struggle when fundamentals are overcome by sentiment, but usually these situations provide great opportunities to take the other side of bullish speculation, which provide a good PNL path when fundamental normalization takes hold.
Market Spotlight: The multi-facted case for gold
- Political uncertainty increases gold demand. Lower US rates increases gold demand. Economic uncertainty increases gold demand. The potential for the US dollar to lose its reserve currency status increases gold demand.
- In fact, some asset allocators are beginning to advocate for a 60/20/20 portfolio breakdown across Equities, Fixed Income and Gold. � Given the growing global debt loads, decreasing the weight of fixed income is a common discussion in IC boardrooms. Gold appears to be the
best alternative. � The movement towards accepting a gold standard 2.0 could be some of the first steps towards revaluing physical hard assets globally versus the
overvalued financial assets of today.
Market Spotlight: Concerns over Credit & Illiquid Alts
- Why invest in complex less liquid securities when one can garner massive returns from simply buying the S&P 500? � While liquid cash equity benchmarks continue to hit all-time-highs, the credit and illiquid private side of the market is looking less upbeat.
Market Spotlight: The Dark Side of AI
- If these two charts were next to each other 5-years ago, it would make absolutely no sense. What does spiking electricity prices and rising employment fears have with one another?
- The answer is clearly AI. While AI software is relatively cheap for consumers to access, they are unfortunately paying the price of AI already in higher utility bills.
- As AI begins to be rolled out in earnest across corporations there are dualfold headwinds of job replacement, especially in the entry level area, as well as corporate capex forcing job cuts, as witnessed across the Mag 7 who are focused on maintaining margins while spending excessively on their AI buildouts.
Market Spotlight: US rates should go lower?
- A buy signal has been triggered for CTAs to increase their positioning in US treasuries. � Fundamentally, US interest rates should fall and slowing economic data bolsters the appeal of US government bonds. � Technically, there has been a slight uptrend in the US 10-year over recent months, supporting systematic buying flows. � How far rates must go and what other measures need to happen to solve the US housing affordability issue remains unclear. Given a bulk of
US residential mortgages are struck well below current mortgage rates, it will take far lower long-term rates to get the housing market moving. Additionally, job insecurity concerns continue to stymie consumer confidence in making large purchases.
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