What matters over the next fortnight
My central assessment is that the US economy remains in expansion, but its ability to generate output and profits is increasingly diverging from its ability to generate employment and household purchasing power. That creates a plausible opportunity for policy-sensitive rates to outperform, while leaving the long end exposed to inflation uncertainty, investment demand and duration supply.
For equities, the evidence favours differentiation by cash generation, capital intensity and financing requirements. A broad earnings contraction is not established. The more immediate question is whether investors will continue financing the investment cycle on terms that allow it to sustain growth.
If you’re new to Global Macro Method, welcome. I’m GMM, and this is how I approach markets, work through the economy, test the story against what’s priced, then decide which trade actually fits.
Below, I pull the US macro, rates and equity picture into three things to watch over the next fortnight. We’ll look at what inflation allows the Fed to do, whether weak hiring is becoming a demand problem, and whether the growing funding bill starts to change the investment story. Each has different implications for where you want to take risk.
Fair warning: this is a dense read, written for experienced traders and investors. I assume you’re comfortable with rates, curves and market pricing. Give it some time and you’ll come away better prepared for the next round of eco and data releases, with a clearer framework for assessing the moves, choosing the trade and knowing what would change the view. Probably one for a second coffee.
Paid subscribers can read the full research below. The GMM Discord is launching any day now, with more website upgrades on the way. I’m looking forward to getting everyone together, working through ideas and keeping the conversation going between reports. Plenty happening behind the scenes.
