VP March 2023 Market Outlook & Discussion

Recorded on March 9th for VP clients

Key themes:

• The lessons from 1966-67 (very bad LEIs but NO recession) show the importance of the policymaker response. Fed immediately pivoted and fiscal expansion kept the labor market tight.

• We think 1969-70 is a closer policy/macro set-up to today: previous big fiscal stimulus, Fed hiking to tame inflation, bad LEIs, high inflation, surging yields and inverted curve, equity drawdown, tight labor markets.

• We re-state bond overweights with 10y yields breaching 4%. Tactical and cyclical indicators are aligned bullish.

• On 7th Feb key tactical (1-3 month) indicators suggested the short squeeze was done. The flow unwind is still playing out.

• Our US Recession Signal remains volatile and has ticked up again. Data is behaving as expected around tipping points (i.e. when growth dips below 0). We expect labor market data to worsen in the coming weeks. Longer-leading hard data (housing, manufacturing) is very bad.

• Global inflation LEIs are dropping fast – with the exception of eurozone and Japan.

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