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Quill Intelligence

LONG MACRO

Recession probability to rise into 2025’s second half as private demand underperforms. The tariff shock should generate greater risks for a downshift in business investment and a more challenging environment for consumer cyclicals vis-à-vis consumer non-branded noncyclicals.

Manic shifts in U.S. politics harken first a deflationary gully to cross followed by the threat of impeachment and ultimately, a fourth change in administrations in as many U.S. presidential elections, a first in sequential terms since the precipice of the U.S. Civil War. The subsequent pendulum swing will manifest as Universal Basic Income/Modern Monetary Theory, and with it, the secular rise in inflation being prematurely predicted today by those positioned to profit from being short Treasuries.

Intelligence Briefing Takeaway — 6.14.25

Score one for forced statesmanship! Regular stock market trading hours on Friday did not feature any taunting posts by the leader of the free world. The last we heard was at 7:34 am ET, two hours before the NYSE rang the bell. “Two months ago, I gave Iran a 60-day ultimatum to ‘make a deal.’ They should have done it! Today is day 61. I told them what to do, but they just couldn’t get there. Now they have, perhaps, a second chance!” The “deal” he suggested presumably Iran disarming any nuclear capability, which seems as unlikely a willing action as any ever proposed in diplomatic arenas. It doesn’t help that Iran views the United States as implicitly condoning Israel’s surprise attack on Iran. As Aaron David Miller, former U.S. Middle East peace negotiator told the Tehran TimesFriday, Israel was “given a plausible denial green light.” As for Trump, in a phone interview with the Wall Street Journal Friday when asked what kind of a heads-up he’d been given prior to Israel launching the first missile, he responded, “Heads-up? It wasn’t a heads-up. It was, we know what’s going on.” Whether this was the case, it matters not. This was a classic Trump response.

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TACTICAL

USD:

A sidelined Fed contrasting with most global central banks easing catalyzed a selloff in the greenback. A Fed forced to play catchup could easily thin the massively crowded trade, especially as global trade weakness impairs an open global economy vs. its closed U.S. counterpart.

RATES:

Short-end and Belly best opportunities for total return. Rally keys off weaker macro. Challenged private demand, higher unemployment and lower core inflation raise Fed rate cut probabilities.

Long-end holds at elevated levels with de facto caps at 4.5% for the 10-year & 5% for the long bond with the term premium supported by fiscal malfeasance exacerbated by falling sovereign revenues and despite diminishing stimulus to the U.S. consumer.

Curve view – Bull steepener in 2025’s second half.

CREDIT:

  • Underweight HY, overweight strong cash-flow IG
  • Lower-rated buckets at risk of dispersion with Fed Higher for Longer
  • Jobless claims deterioration makes a cautious Street rethink already-wider-spreads 2025 expectations, i.e., up default estimates as bankruptcy cycle speeds up and size
  • Fitch’s acknowledgement of cyclical consumer sector “deteriorating” fits this view

EQUITIES:

OW     Utilities
OW     Fossil Fuel Energy
OW     Senior Living

UW     Consumer Staples
UW     Consumer Discretionary
UW     Large & Midsize Banks

OTHER ASSETS:

  • USD view supports UW commodities & EM
  • Oil is a different story with geopolitical risk ramping (Israel v Iran)
  • Long MOVE to capitalize on runaway lending to Nondepository Financial Institutions triggering a credit event