Macro markets

The reappointment of Powell seems to be the proximate cause of today’s rates movements, but more generally, we can see evidence of monetary tightening at the margin.

Consider macro market movements, shown below, in which we can apply economic theory to the specific pattern of change we observe across the different variables, in order to work out what kind of shocks are hitting the economy, namely that the US dollar is up, nominal yields modestly up, breakeven inflation expectations are lower, credit spreads are higher, with commodities peaking.

Policy is still very much accomodative in aggregate, but less so at the margin.

Real yields are perhaps the clearest indicator here, moving up from -1.2% to -1%, which is hurting long duration plays today, particularly on the ASX 200.

From a stock and sector perspective, you can’t quite tell for the stocks that are up, with China’s seemingly positive news re: property stimulus rerating iron ore and steel names. Woodside’s merger with BHP is behind the positive oil and gas name moves.

But it is much easier to see in the names that are down, with secular growth and gold stocks down the most.

We think this trade (specifically, the lower growth and gold names) has much further to run, if the real rates move higher, as we think they will.

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