The current array of contradictory economic data – particularly in the U.S. – combined with factors such as political and trade war rhetoric are making it difficult to decipher what is really happening in the markets and broader economy. John Pattullo, Co-Head of Strategic Fixed Income, provides insight on the inflationary impulse running through the markets and the chances of a soft or hard landing for the U.S. economy.
- In October 2018, when the markets were full of euphoria about growth and expecting bond yields to rise, we held the opposite view. Now, however – after bonds rallied in the interim – we believe that the trough in economic activity is with us.
- Currently, bond and equity markets are sending contradictory signals: In the U.S., bond markets see the economy as late cycle, signaling a hard landing, while equity markets see it as midcycle with a soft landing ahead.
- While we agree that bond markets ran a bit ahead of themselves and now reversed course somewhat, we are not convinced that a breakout of sustainable higher growth and higher inflation is on its way.