US macro

Just the slightest hint that the labour market might be starting to respond to tightening financial conditions.

Initial jobless claims, filing for unemployment, appears to be turning a corner.

Now, again, it is tricky to use this as any kind of macro market DAA timing indicator, because it is meant to be going up.

The Fed, responding to higher inflation, is quite literally trying to tip people into unemployment to cool the labour market, to break a potential wage-price inflation spiral that causes inflation expectations to become unanchored.

The stock market would likely do worse if inflation kept going up. Ergo, it is hard to see initial claims moving in the right, intended direction, and claim “aha, a slowdown, that’s bad for the stock market”.

And hence, why it is tricky.

We are broadly neutral in international equities, having narrowed our pre-existing underweight to equities post the downturns across European, emerging, Japanese and US equities. Those trades have, we think, positioned us well.

We remain underweight Australian shares, predicated on our expectation that commodities will (eventually!) fall, and that Australian housing represents a material threat to GDP, and thus corporate profits (in time) and therefore the stock market.

Unsurprisingly, given that view, we are overweight medium-term Australian government bonds.

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Please note that past performance is not a reliable indicator of future performance.

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