QI PRO HOLY GRAIL DASHBOARD

QUICK QUILL — S&P Global and Richmond Fed surveys revealed elevated price pressures inconsistent with price stability. The temporary boost to manufacturing activity continues to be buoyed by precautionary inventory building with an expiration date. Combine this with the sub-50 readings from S&P Global’s Manufacturing and Services Employment figures and it counters the lack of “Price Stability” with sorely lacking “Maximum Employment.”

TAKEAWAYS

  1. Richmond Fed Mfg Current Prices Paid were rising 7% YoY in June, more than twice the 3.0% long-run average; meanwhile, Mfg Expected Prices Received were up 4.5% vs. their 1.9% average while the same gauge for Services was up 3.5% vs. its 2.2% long-run trend
  2. S&P Global Mfg Delivery Times are at their longest in nearly four years, while Quantity of Purchases is at its highest since September 2021; Stocks of Purchases being at its highest since last spring’s Trade War 2.0 onset gives further evidence of pre-emptive stock-building
  3. S&P Global Mfg Employment fell 4.6 points to 47.0 in June, the sixth largest drop on record and sign that firms are countering higher material costs by shedding jobs; June was also just the 12th month since 2009 where both Mfg and Services Employment were below 50

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.

Saturday Intelligence Briefing — 6.20.26

“Index? I don’t need no stinking index!” If Elon Musk reimagined the script of Blazing Saddles, he’d have refashioned that infamous line. In refreshingly articulate language, Simplify Asset Management’s Michael Green explained why it’s not as much skin off Musk’s back that the company won’t breeze into index funds, profits be damned. You see, SpaceX had exchange-traded funds (ETFs) falling all over each other to launch leveraged ETFs tied solely to the biggest IPO in the market’s history. Last week, SpaceX had 11 such funds which together saw more than $10 billion in trading volume in a shortened four-day trading week.

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TACTICAL

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.

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.

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