G3 LEIs; US Labor Market; Burden of Proof
Weekly Wrap, Aug 8 2025
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Weekly Wrap - Aug 8
Bending but not breaking - August G3 Leading Indicator Watch
Highest US tariff in a century has stalled US job growth without (yet) broader layoffs or higher prices. If the labour market holds, we would look to add risk assets in coming months given favorable global liquidity backdrop.
US: Most coincident data resilient despite weakening labor market. Base case: “muddle through” until data proves otherwise.
China: LEIs improving, but weak housing market and other structural headwinds mean no major reflation on the cards.
Eurozone: More signs of growth rebound, but real yields still high as inflation rolls over.
US labor market review: the good, the bad, and the ugly
US labor market slowing to a crawl, but we are not yet seeing recessionary feedback loops.
The Good: Levels and breadth of layoffs still limited
The Bad: Coincident and leading data point to continued weakness
The Ugly: Manufacturing and residential construction job losses gaining pace
From here, key downside risk to US labor market is tariffs hurting corporate profit margins, which could lead to broader layoffs. Burden of proof is on evidence of further worsening.
The burden of proof - August Macro Snapshot
Ugly NFP data crystalizes Q3 US growth scare we warned about. Balance of data still points to a slowdown, not a recession.
We see most global central banks easing policy and recovery in our Eurozone and China LEIs. This has pushed our cyclical Macro Risk Indicator into “risk on”.
Macro Risk Indicator NOT designed to capture shocks like tariff costs. Therefore, we are waiting for more data during seasonally weak Aug-Sep periods before overweight risk assets.
For now: balanced allocation, prefer TIPS (vs nominal bonds) and large caps (vs small caps).