Data for charts are sourced from FRED, OECD, Eurostat, IMF, BIS, Market Watch, Yahoo/Google Finance, Investing.com, COT, Bloomberg or Quandl unless otherwise stated.
Financial market pundits are a bit like dogs chasing cars; they wouldn’t know what to do if they caught one. And so it is that after trying to figure out whether the economy and markets would achieve a soft landing in the wake of the post-Covid tightening cycle, no one quite knows what to think now that the soft landing appears to have arrived.
Let’s list the key requirements for a soft landing.
Read MoreSomeone has to say it, and it might as well be me. Markets have a distinct goldilocks feel about them at the moment, or in the words of the FT’s editors; markets are beginning to eye the “immaculate disinflation”, which is a prerequisite for a soft landing. This is a story about two trends; easing inflation and economies which are, well… neither too hot nor too cold. Soft US and UK inflation reports for the month of June have been key catalysts for the change in mood. Headline CPI inflation in the US fell to a two-year low of 3.0%, with core inflation dropping by 0.5pp, to 4.8%, a 20-month low. In the UK, meanwhile, headline inflation slipped to 7.9%, from 8.7% in May, while core inflation dipped by 0.2pp, to 6.9%. These numbers don’t exactly scream goldilocks, but markets trade at the margin of the economic data; it is the direction of travel that matters.
Read MoreI am still willing to give Mr. Trump the benefit of the doubt. We have no actual policymaking to judge yet, and at least some of the people he is surrounding himself with look capable. I admit, however, that the burden of evidence is getting heavy. The president-elect's tweets, on their own, are evidence that he has tendency to act long before thinking. Last week's presser also provided a timely reminder that we are dealing with a volatile character. I understand that infuriating "soft" liberals, such as yours truly, is exactly what Mr. Trump and his strategists want. I have no doubt that the incoming administration's communication "style" is carefully planned. The base loves it! But problems are brewing, chiefly among which is the growing chasm between Mr. Trump and the intelligence apparatus upon which he will so desperately depend for policymaking when he takes office.
Read MoreOne the more enjoyable things about reading Macro Man in recently is that the author's mood, as well as the spirit of the more battle hardened of his commenters, have been lifted significantly. This is not because they necessarily wanted Mr. Trump to move into the White House, but rather because the political shock in the U.S. appears to have brought back good old fashioned, active, macro trading.
I am not sure it ever left, but I sympathise with the idea that the change in political winds in the U.S., and Europe, will unlock hitherto barren markets for swashbuckling macro investors. The added joy of such a story would be that the index huggers and risk-parity brigade would see their clout diminished somewhat. After all, bond yields are now rising again, and next year's political constellation in Europe could well create a number of new currencies to dabble in. I doubt Macro Man will be that lucky, though, but one can always dream I suppose
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