Wk28 MacroTechnicals - Hawkwardly Optimistic
Tension between tighter liquidity and positive sentiment continues...
As July gets underway, I'm finding a higher-degree of conviction in FX relative-value ideas than I do in broad risk markets where there is tension between the macro backdrop and sentiment. The two charts below is a good depiction of that.
The macro backdrop continues to trend in a 'tightening' [of financial conditions] regime which has clearly limited SPX returns since May. We'll unpack the drivers in more detail later.
News Sentiment Index rose further through the month of June alongside a broadening sentiment and equal-weighted outperformance.
But can too much good news/sentiment be bad news? One should probably think so given the principal macro narrative is centred around the Fed's hiking bias but for sentiment to start shifting bearish I think requires the tightening regime to extend far enough to produce evidence of (1) tighter fincon negatively impacting the real economy, and/or (2) a meaningful downshift in AI capex and return-on-investment expectations that lowers the expected growth trajectory.
As the case for either remains light for now, that has me leaning mildly bullish while bearish on the longer-run due to tighter financial conditions likely to persist alongside an economy running strong enough to support underlying inflation.
