What's Moving Markets?
Tightening Liquidity & Sustained Inflation
This publication is a short excerpt from our weekly Prometheus ETF Portfolio note. While we reserve our forward-looking views on macro and portfolio construction to paid subscribers, we offer our high-level diagnostic of macro conditions here as we aim to offer value to the broader public.
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Let us dive into our assessment of macroeconomic conditions:
Over the last week, market moved to price in tightening liquidity conditions. The inflationary tilt to market pricing remains in place. This pricing continues to weigh on bond markets on bond markets and benefits equities and commodities.
Economic data momentum rose this week, consistent with a slowing but growing economy. This week stalled the consistent declines we had seen in recent economic data momentum.
Declines from here will require significantly worse data, which does not look apparent in our fundamental tracking of conditions.
Let's dive into the data driving our assessment before moving on to positioning. Over the last week macro asset markets fell in aggregate on broad-based basis. Gold and commodities particularly saw a pullback this week. Stocks ended the week essentially flat, and bonds fell.
Economic data momentum rose this week, driven by durable goods, jobless claims, and U-Michigan sentiment surveys. The broad trend in data remains consistent with a growing but slowing economy.
For a further understanding of how economic dynamics have been priced into markets, we show our tracking of market-implied macroeconomic regime probabilities.
Markets have now moved are now pricing in the dominance of inflationary conditions within a rising growth environment in cross-asset pricing. This pricing continues to weigh on bond markets to the benefit of equities and commodities.
Finally, consistent with these business cycle conditions, our programmatic nominal GDP forecast, which drives our Asset Allocation Strategy, places nominal GDP at 6.3% versus one year ago:
Currently, our systems estimate that Q3 2024 nominal GDP growth will be 6.3% versus one year prior, with real GDP of 3.6% and Inflation of 2.7%. These are programmatically generated numbers and tend to be better at spotting regimes than getting growth right to the decimal point. We expect to remain in a macro regime of high nominal GDP. Until next time.