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Stagflation and mounting market divergences on the brain.
Podcast 20 minutes to read
Résumé: Today we run through the important US July CPI data release today, the first data point that is arguably fully showing Trump tariff impacts. We break down the possible reaction functions across markets, including gold, rates, and currencies as we await evidence that stagflation remains the most likely scenario from here. We also revisit the lithium and rare earths discussion after the pop in lithium stocks yesterday and point out significant market divergences in the US equity market, noting that some previous similar episodes have marked major pivot points in the market action. Today's pod features Saxo Head of Commodity Strategy Ole Hansen and is hosted by Saxo Global Head of Macro Strategy John J. Hardy.
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Today’s links
The FT put together satellite evidence to show the scale of the European defense rebuilding effort - on the order of 7 million square meters of at least earth clearing, if not actual footprint of new buildings, and very widespread across the continent.
The Big Read today in the FT is on the rocky US-Brazil relationship as Brazil’s leader digs in his heels to put up a fight with the Trump administration and China tries to cozy up - this will be a compelling situation to watch and a test whether we see a full return of the Monroe Doctrine.
Inspired by my former boss who sent me a similar overview, I asked Perplexity to put together a table of the most recent Bank of America survey findings of global fund managers observations, which points out the strong consensus among professional managers that US equities are overcooked.
A recent Dithering podcast “John predicts” (not this John) discusses the outlook for Apple in terms of its AI plans and whether it needs to scale those up massively, the future user interfaces and thin clients versus powerful PC’s and more.
I really enjoyed this post on the Value of Nothing podcast, which is a great “p-take” on the new-new right, with great additional sub-links. A great follow on many things, both societal shifts, UK-specific observations and more.
Chart of the Day - Russell 2000 ETF (IWM)
As noted on today’s podcast, we have seen a falling correlation in the price action of the S&P 500 and the Russell 2000. While the S&P 500 has teased close to new all time recently and even this week, the Russell 2000 index of small caps has not approached the late July highs and is still some 10% below the all-time highs from the post-US election run-up. By the way, that “all-time high” almost exactly matched the index high from late 2021, so small-caps have essentially gone nowhere for four years.
Questions and comments, please!
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