US macro/PMI/ISM

US PMI’s are out, with Services bouncing back to 52.5.

Like much of the world, the US data are looking a lot better. Recall that PMI’s had been one of the key reasons to be nervous on the outlook, however, since the hard data had been so good (things like retail sales, employment, GDP) it was difficult to get “too negative” no matter how poorly they trended.

Well, now it looks like the soft survey data is moving unambiguously towards the hard data, with a near-synchronised global upswing.

For bonds, the worry from the ISM Services data was the large lift in Prices, in the ISM segmentals (e.g. new orders, employment, pricing etc, see the 3rd column, 3rd row).

It is very hard to see inflation moving aggressively higher from here. However, it’s what the market is reacting to, and we are a) mindful of what the data is and b) mindful of what the market is saying.

When thinking about our DAA splits, most of our fixed income exposure is to Australia, where there is no big CHIPs act (the huge fiscal support program to promote domestic manufacture of semis), no big IRA (inflation reduction act, which is a complete misnomer, and is about a massive capex program to fight climate change) and no big surge in employment (contrast the US blockbuster jobs number with the Australian experience, a large unexpected drop in employment).

So, whilst the US is pulling up yields across the globe, we remain quite convicted that rates in Australia will not be “higher for longer”, and that lower yields are more likely. As such, we maintain our preference for a relative overweight to AGB’s.

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