Chart of the Week and Weekly Report Highlights
This week: Global Policy Pulse, Emerging Market Equities, EM Bonds, US Treasuries, Equity Sentiment, Industrial Metals rebound, Inflation expectations.
This email gives you a look at what was in the latest Weekly Insights report
The Weekly Insights Report is part of our entry-level service: summarizing the key ideas and charts from our institutional research service.
Chart of the Week - Premature Pivot Party
Barriers to Exit: While many wait and hope for a Fed pause or pivot - hanging on every piece of text and utterance from the Fed, the real focus should be on inflation expectations. While longer-term inflation expectations have started to come off the boil, shorter-term inflation expectations continue to track near record highs.
Based on our leading indicators, growth outlook (global recession risk), and commodity market outlook (bearish in my view), inflation should come down – especially into 2023…
But there remains real risk of inflation staying elevated: when inflation expectations are this high there is a greater probability that they become self-fulfilling as the sometimes long and drawn-out process of price negotiations factor in the fear of inflation. So you can end up getting a peak in inflation, but to a new higher plateau.
In this context it is easy to understand that central banks won’t be inclined to respond to market volatility and softer growth until the inflation side of things is clearly contained (and indeed, ultimately you need to crush growth to do that).
So I think it’s still too early to be talking about a pause let alone a pivot to easing — a pivot to easing is pure hope at this point (in lieu of a crisis). This is not March 2020. Patience and pragmatism are required to navigate this unique macro-market environment.
Key point: Great inflation expectations are a barrier to pivot.
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Topics covered in the latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and took a bite out of some really important macro/asset allocation issues right now — particularly with regards to Emerging Markets, where things are starting to get interesting!
Global Policy Pulse: record pace of tightening, no prospect of a pause/pivot.
EM Equities: still early in the process, but some big moves in our indicators.
EM Bonds: the stars are aligning for EM sovereign.
Investor Sentiment: sentiment turning in both stocks & bonds.
Industrial Metals: a look at why metals are rallying, and where-to next.
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Thanks for your interest. Feedback and thoughts welcome.
Sincerely,
Callum Thomas
Head of Research and Founder at Topdown Charts
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