VP Monthly Wrap - July 2025
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The burden of proof - August Macro Snapshot (Aug 1)
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 “risk on”.
Macro Risk Indicator NOT designed to capture shocks like tariff costs. We wait for more data in seasonally weak Aug-Sep periods before overweight risk assets.
For now: balanced allocation, prefer TIPS (vs nominal bonds) and large caps (vs small caps).
Growth and inflation risks more balanced - Jul. EM/DM Leading Indicator Watch (Jul 25)
Limited signs of tariff shock on inflation or growth in most major DM/EM economies.
Global easing cycle remains tailwind for risk-on trades.
We like: Long Brazil/India equities; Long KRW (vs CNH); long CAD (vs CHF).
Trust, but verify - July G3 Leading Indicator Watch (Jul 10).
US growth momentum stalling. Growth LEI held up by ISM services and tight spreads– This suggests caution, not yet panic. US labor data could surprise Q3 negatively.
US: Coincident jobs data still firm, but leading data points lower. Consumption is slowing. Tariff effects on LEI inflation inputs are easing.
China: Growth LEIs improving. No major reflation without fiscal support as structural headwinds persist.
Eurozone: growth stable but unexciting. Yields and euro look elevated as inflation LEIs roll over.
Most Read Notes
[1] Global Macro Updates: UK recession, CHF LPPL Signal, JPY Pain Trade (Jul 9)
UK recession risks elevated, implying UK yields biased lower. CHF rally looks stretched; LPPL signals exhaustion. Japanese pensions stop selling foreign bonds, removing key catalyst for JPY strength. This drives a pain trade in weaker JPY.
[2] US growth scare paused, surge in US inflows (TIC), where's the tariff impact on inflation? (Jul 18)
US growth scare paused as retail sales and industrial production return to growth Labor risks still lurking in 3Q25 as tariff revenue surpasses 100bn for 2025. TIC data shows net foreign inflows into US assets surged in June. Tariff impact still barely visible in inflation data. Macro Risk Indicator turning "risk on" => underlying conditions are good for asset prices if we avoid tariff shocks.