Bad News Isn’t Good News With Inflation

The cleanest way to describe the past week is that the market was forced to stop pretending this is a simple risk-on environment.

That does not mean equities have to fall immediately, or that every macro trade needs to be defensive. In fact, one of the more interesting features of the current market is that headline equity indices have continued to behave reasonably well. AI and technology leadership remain powerful, geopolitical optimism has created sharp relief rallies, and any sign of progress around Iran has been enough to pull oil lower and support risk appetite.

But underneath the index level, the macro message has become more uncomfortable.

The problem is not just that growth is slowing. Markets can usually deal with slower growth if inflation is falling and central banks have room to help. The problem is that the incoming data across the US, Europe and the UK are starting to look more like a stagflationary mix: weaker activity, softer demand, more cautious consumers, but renewed inflation pressure through energy, supply chains and imported costs. That is a very different trading environment from the one investors prefer. It means bad growth data is not automatically good for bonds, and it means weak PMIs are not automatically good for equity multiples.

The past week mattered because it gave us confirmation that this is no longer just a theoretical risk. It is showing up in the data, in central bank communication, and in cross-asset price action.

In this article we will cover the US, EU and UK situation as it stands and how the coming weeks releases are likely to impact the wider macro environment. Remember all paid subscribers get access to www.globalmacromethod.com where curve and models are available.