Inflation/Deflation

This week, we cover the main questions we fielded during our latest client trip in Europe. Among the many topics broached are Europe’s recession odds, the impact of China’s stimulus, and the outlook for European markets.

Rising stock prices and improving economic data have us re-examining our bearish thesis, but we still see deterioration in leading labor market indicators and expect it will eventually culminate in a recession. We reiterate our defensive investment recommendations.

We give our thoughts on this morning’s CPI release and (lack of) market reaction. We also close our short position in January 2025 fed funds futures.

The US election underscores three long-term trends of Generational Change, Peak Polarization, and Limited Big Government. Investors should expect more volatility around the election and should assess the results before adding more risk. While we predicted the October surprise from the Middle East, more surprises are coming before the final vote is cast.

The bond market priced out a lot of recession risk after this morning’s employment report, and the 10-year Treasury yield has moved back into the Soft Landing Zone. We assess the data and consider whether we need to change our cyclical positioning.