Trades/Week Ahead: Rates, GDP and Inflation Print

Informational breakdown

Look Around the Poker Table; If You Can’t See the Sucker, You’re It

I have framed the big picture in multiple macro pieces:

• Comprehensive Macro Report

• Macro Charts Edition: 30,000 foot view

• Macro Insights/Report: The Forward Curve (Explaining the risk-reward in ZT right now)

• Interest Rate Report: Strategy and Trades

One of the main things I explained in the macro report was that even though growth expectations are surprising to the downside, this doesn’t imply an outright contraction in GDP (see macro report: link).

Notice the specific sectors surprising to the downside. As I noted, the YTD rise in rates is likely to cause some marginal softening in growth. Perma bears will overextrapolate this to a recession which is unlikely in 2024.

The Atlanta Fed GDP Nowcast remains in positive territory:

And we are moving into a week with the GDP print:

There are several tensions you need to make note of as we move into this week. First, notice in the economic surprise chart I showed above that services and the labor market are surprising to the upside still. This directly connects with the core inflation dynamics I laid out in the interest rate report.

We are seeing some softening but not enough to drag things down enough for the dominant impulse in markets to be a contraction in growth:

It’s this resilience in growth and the core PCE print we will have on Friday that will continue moving markets.

The conference board data and ISM data are incredibly noisy right now and it is the only source of evidence for bears to say things are falling apart “under the surface.” Remember, these metrics are diffusion indices and always must be weighed against the accounting methodology of GDP.

All I can say is that I see all of these traders and “strategists” getting whipsawed by narratives and short-term data prints. Don’t lose sight of the big picture. Let’s go through the trades I have been sharing and how flows are operating across major assets.