GeoMacro
A blend of geopolitics and macro, synthesizing the new and old macro to generate alpha and identify the beta through probability-weighted market views.
Investors should focus on growth concerns rather than the “Trump trade.” Bond yields will fall in the short run due to cyclically disinflationary economic slowdown, rather than rise in anticipation of a Republican full sweep and inflationary policies, which are likely but not yet a done deal.
President Biden has announced his withdrawal from the presidential race. The news will no doubt come to dominate the news cycle in the upcoming week of July 22, which is unfortunate as it will drown out some important developments from the preceding week.
Investors should overweight US assets and de-risk their portfolios in anticipation of a major increase in policy uncertainty and geopolitical risk surrounding the US election and its global ramifications.
The cyclical economy is slowing today. Republicans are now more likely to win a full sweep, crack down on immigration and trade, and at least modestly stimulate the economy. Uncertainty and volatility will rise.
Today’s attempted assassination against President Trump challenges the consensus view. It will ensure that President Trump’s supporters are highly motivated for the upcoming general election. And it may return many supporters who had drifted away from the former president back into the fold.
Investors in European sovereign bonds should find solace that continental voters are not turning away from support for EU integration. As such, populist parties are not really that “far” left or right. And as long as they want to maintain popular support, they will have to abide by the fiscal rules imposed by Brussels. No such supranational constraint exists in the U.S., the real risk for global bond operators.
We have turned cautious on equities for the first time since August 2022. Our end-of-the-year target for 2024, 5,500 on the S&P 500, has been reached. From here on out, any upside is gravy. However, we worry about US – not European – politics. In fact, we think investors could profit from the recent selloff in France. The real risks are in the US.
At first glance, France has moved to the far left. However, this coalition is fragile, and Macron’s allies still hold the balance of power. What are the assets that will benefit from this new political setup, and those that will not?
The new Labour government will have flexibility to respond to macro shocks, which is positive for the UK in general, namely GBP-EUR, and also gilts in absolute terms. But over the long run, tax hikes will likely surprise to the upside, which poses a risk to corporate earnings.