US macro

“Jobs day”, in the US, overnight, and the strong macro data continues.


UR with a 3-handle. That is “full employment” by almost any measure, and is inconsistent with emergency policy settings.


The recovery to trend nominal GDP strongly suggests a rate hike in March. In other words, the accelerated timeline to tightening just got even shorter.


We continue to think that Quantitative Tightening should place upwards pressure on real rates (if nothing else, through the normalisation of a deeply negative liquidity premia).

Tighter policy needn’t cause a material market sell-off on it’s own (although it is happening against a backdrop of a markedly weaker China) however we remain convinced it will be harmful to secular growth stocks.

We are slightly less confident that US treasuries get back to 2.5%, and would regard 2-2.25% as “success”. The demand for safe assets is so insatiable that our previous yield target might simply be too ambitious.

At that range, we would be happy to begin to narrow our underweight to fixed income. Depending on how credit trades under such a repricing of the risk free rate, we might adjust the composition of the fixed income portfolio (which is underweight credit), although that would likely be at the margin.

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