PraxisVeritas.io reposted this
Main global macro theme driving markets remains an ongoing global growth deceleration and at the margin its disinflationary impacts On a 1-3 month time horizon the clearest trade implications remain broad USD lower and directionally lower 7-10 year yields or 5s30s, 10s30s curve steepeners. A view on risk assets is complicated by the uncertain timing and magnitude of policy easing: do we need lower equities/ wider credit spreads before the easing bias shifts sufficiently in the pro-growth camp? --- Economic data deterioration in recent weeks remains one of the more pronounced in the past 3 years. Economic data surprise indices are negative across most major economies, even as growth rates remain mildly above trend. Fixed income is giving the clearest signs that there is a regime shift afoot in markets. The disinflationary impulse from the growth deceleration is showing up through a re-linking of the breakevens to commodity price returns. There has also been a significant normalisation in the volatility premium that rates have commanded through 2022 and midway through 2024. Until a reflationary shock emerges - some positive policy easing surprise in the US, Euro Area or China most likely - directionally yields across the curve should continue moving lower and 5s30s or 10s30s continue steepening. The PraxisVeritas broad USD regime indicator continues pointing to a likelihood of a falling USD regime in the next few months. Not only is growth in the US continuing to slow faster than in other major economies, but interest rates are now also coming down more quickly.
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