Economy
We do not expect the oil shock to have a lasting effect on inflation. Looking further out, a variety of structural forces will influence inflation, including fiscal policy, globalization, demographics, and AI.
The rates market is moving back into a low vol regime, but with yields at a higher level. This argues for maximizing carry across the Treasury curve.
Inflation’s underlying trend was headed lower prior to the Iran war. This makes the recent back-up in bond yields look like an attractive buying opportunity.
The relief rally in stocks can continue a while longer. However, much can still go wrong. As such, we are retaining a 12-month underweight to stocks but are moving to neutral on a short-term tactical horizon.
US employment data show some tentative signs of job growth acceleration and stable utilization. We see breakeven monthly job growth as closer to +30k per month than zero.
