Medley Advisors

As budgetary standoffs bring down a fifth French cabinet before it even takes office and shut down the US federal government, Medley Advisors analysts met to ask why markets seem so sanguine.

"Markets say they care about fiscal sustainability, but I'm not sure they do," says markets specialist Dan Schwartz. "Alternatively, they're saying that, despite the slippage, it's not a problem ... If that were to change, it would probably change all at once and then you'll start to see a risk premium priced into assets around the world".

Discussing France, the US and market sentiment, the speakers (in order) are Tim Jones, Pepijn Bergsen, Andrew Besuyen, Dan Schwartz and Michael Redmond.
     

As they near the end of their easing cycles, the Antipodean central banks are being tested by contrasting data signals - a hot August inflation print in Australia and contracting second-quarter activity in New Zealand.

Will these price signals end the Reserve Bank of Australia's rate cuts? By contrast, will economic weakness prompt the Reserve Bank of New Zealand to go for a 50-basis-point cut at its next meeting?

"There’s scope for the RBA to ease in November but easing next year has started to look a little bit more unlikely," says Andrew Besuyen, Medley Advisors' RBA/RBNZ-watcher, in this podcast. "On the November meeting, I'd say one monthly inflation print doesn't make a meeting ... I think the big difference this time is that the labour market is still softening". 

In recent weeks, financial markets have been sending conflicting signals about the risk of inflation, recession, and the sustainability of debt. Japanese and British yields, especially, spiked but then abated in line with falling US rates. 

To pick through this head-scratcher, Dan Schwartz, head of macro at Energy Aspects, talked to Medley Advisors’ Andrew Besuyen and Pepijn Bergsen. 

"What I think is happening is: the market thinks the [Federal Reserve] is going to be appropriately dovish, cut rates, support economic growth in the US and stop us from falling into a recession,” says Schwartz. “So the lower yields you're getting here are supportive of activity in other financial markets and one of the reasons why markets trade so well … The shift in the Fed's path of least regret has moved from guarding against the flank of potentially higher inflation from passthrough from tariffs and potentially higher inflation expectations into making sure that we don't see further deterioration in labour markets”. 

US President Donald Trump hogs the daily headlines but financial markets had a rare week off as attention turned to the latest episode in France's long fiscal crisis.

As François Bayrou prepares to become the fourth prime minister to fall in 20 months, investors are asking whether anyone can pass a budget with such a split national assembly, whether a new legislative election will follow and lead to a victory for Marine Le Pen's right-wing RN, and even whether President Emmanuel Macron may resign early.

At their weekly meeting, Medley Advisors' analysts discussed these questions, the vulnerability of the Federal Reserve to political takeover, and the singling-out of Brazil and India for special trade-war punishment.

"My money at the moment would be on Macron quickly appointing another prime minister in the hope that this prime minister will be able to bang enough heads together to get another budget passed," says European policy analyst Tim Jones. "I'm sceptical that this is going to work because the parties that would potentially be open to these kinds of compromises in the last budget round, [their] incentives have withered between last year and now". 

In this edited and abridged recording of the meeting, the speakers are, in order: Tim Jones, Pepijn Bergsen, Michael Redmond, Mario Lima and Debalina Hazra.

By now, it was meant to be clear that tariffs were pushing up US inflation and depressing employment but, until the producer prices index for July was released this week, evidence had been mixed. 

There has been little sign of passthrough to consumer prices although payrolls growth in July and big downward revisions to the May and June estimates were bad enough to provoke President Donald Trump to fire the head of the Bureau of Labor Statistics and replace her with a yes-man.

To discuss the policy implications of the PPI and politicised data, Medley Advisors brought together four of its analysts - two (Dan Schwartz and Michael Redmond) who rely on high-quality statistics to do their jobs and two (Brian Jackson and Ignacio Labaqui) with hands-on experience of inconvenient truths in China and Argentina.

"Once you start with this gross manipulation statistics, it's likely you will see this spreading to others," says Labaqui. In Argentina, “it started with CPI, but then moved to poverty and then to GDP and finally to foreign-trade statistics ... It was not only that the private sector started to just not pay attention to the official statistics but also the central bank … started using private-sector statistics. One second consequence is that you see a mushrooming of private consultants running their own statistics".

In order, the speakers are Schwartz, Redmond , Jackson and Labaqui.

News that the US and Japan had agreed a trade deal a week ahead of deadline added 5% to Japanese equity prices while lifting 10-year rates to 17-year highs, and this was followed by reports of an impending US-EU settlement, which pushed up European stocks by 2% and German 10-year rates by close to 10 basis points.

As the 1 August deals deadline approached, analysts at Medley Advisors (a division of Energy Aspects) held their weekly internal meeting to add market context to policy analysis. 

"We did get a sense of how much trade uncertainty has been holding back foreign markets in the reaction: double-digit gains in the Japanese auto sector but more broadly," said Dan Schwartz, head of macro markets at Energy Aspects. "So I think just getting certainty and also a number - even if it's a little higher than the 10% that the market had hoped for back in pre-April - it really opens the door to some risk being reestablished in these places. The futures volume was off the charts; it was double what normal volume was ... at a time of year when volumes tend to dwindle ... I think there's a lot of signal in that".

In this edited version of the meeting, the speakers in order are Schwartz, Andrew Besuyen (macro markets), Tim Jones (Europe), and Michael Redmond (US). 

After "Liberation Day" in April, 7-11 July has been the biggest week so far in US President Donald Trump's disruptive second-term trade policy. 

So far this week, 22 countries have received letters warning them that their stay of tariff execution is approaching its end in August. Or September.

"This is a TV season and we're nearing the end and it's got to get more and more exciting week by week before Trump announces all of his big deals," says Brian Jackson, Medley Advisors' trade policy and China analyst.

This podcast is an edited version of of Medley's weekly analysts meeting, during which Jackson, Mario Lima (Brazil), Ignacio Labaqui (Argentina/Latin America), and Pepijn Bergsen (Europe) discuss Trump's global de-escalation disguised as escalation and his novel decision to hit Brazil with a punitive tariff to influence a legal decision.

"I really don't think that Trump is actually that interested in Brazil," says Lima. "He found the perfect enemy because it's not going to be that costly to the US to just use Brazil as an example".

As the market impact of the Israel-Iran conflict fades, pre-war market themes - dollar weakness, euro strength, and trade uncertainty - have snapped back, fed by reports that the new Federal Reserve's chair will be unveiled well ahead of his or her appointment.

At their weekly meeting before news of minor Chinese and EU trade concessions to the US, Medley Advisors analysts discussed these themes. In this edited version of the meeting, the speakers, in order, are: Dan Schwartz, Michael Redmond, Tim Jones, Brian Jackson, Pepijn Bergsen, and Andrew Besuyen.

Growing expectations of a new dovish Fed leadership have "been helped pretty dramatically by the fact that, so far, inflation from tariffs has been a phantom," says Schwartz. "This all comes to a head in the next two weeks" with the release of June jobs and inflation data, followed by the 29-30 July Fed meeting. "That sets up a move where you could get some pretty significant curve steepening, which raises the odds of a name the markets like less for the next Fed chair".

US Congressional Republicans’ “big, beautiful bill” has provoked a rift between President Donald Trump and his former ally Elon Musk but it has also created a policy dilemma for the Federal Reserve.
 
In this podcast, Medley Advisors’ US analyst and Fed-watcher Michael Redmond talks to Tim Jones.
 
Longer-term fears of fiscal slippage are keeping long-term US rates high but the bill’s tax cuts may encourage households and businesses to buy tariff-inflated goods in the short term. In Redmond’s view, this may be enough to delay a resumption of the Fed’s easing cycle into the fourth quarter.
 
While this is sure to fuel Trump’s vendetta against Fed Chair Jay Powell, it is helping Governor Chris Waller’s case for replacing him next year. Waller argued that the Fed can “look through one-off tariff inflation,” says Redmond. “And what I've been hearing from people who are close to the White House is that Waller's arguments have gotten noticed over there … and, because of that, it seems to be that he's rebounding in his profile for the Chair role next year”.

Global bond yields may have come off their peaks going into the weekend but this was after a May surge that lifted US 10-year rates by 30 basis points back over 4.5% and pushed Japanese 30- and 40-year rates to all-time highs.

At their weekly analysts' meeting, Medley Advisors discussed these market moves and how the authorities could respond, and debated sovereign defaults, inflated-away debt, and memories of the early days of the eurozone's solvency crisis.

"I'm thinking about this more as a reverse process of what we saw in the early 2000s ... 'the conundrum', when the Fed raised interest rates and 10-year yields didn't go anywhere because of this consistent bid for long-term assets," says Dan Schwartz, markets analyst. "We can see an unwind of that, or the opposite of that, which means that there's a consistent offer for long-term assets, that the Fed loses some control over parts of financial conditions, and that means higher yields over time, which is going to have really profound implications".

This is an abridged and edited version of Medley's weekly meeting featuring in order: Andrew Besuyen, Kenichi Nagura, Dan Schwartz, Michael Redmond, Tim Jones, and Pepijn Bergsen.