Will we get a durable peace and ceasefire in the ME, or will the conflict once again rage?

Although the highest-level talks are underway between Iran and the US (incredible that no one from Israel is attending the talks), the gap between the demands of both sides is monumental.

Furthermore, there is no consensus on the Strait of Hormuz (SOH), which has been a bone of contention.

Everybody should watch the video below to understand the situation on the ground!

As per the IRGC:

All ships intending to transit the Strait of Hormuz are hereby notified that in order to comply with the principles of maritime safety and to be protected from possible collisions with sea mines...they should take alternative routes for traffic in the Strait of Hormuz.

Note that the circle in the chart represents the mined area shared by both Oman and Iran.

The routes represented by arrows are in Iranian waters and are small waterways of “a few kms”, effectively giving Iran control of global energy flows.

If you believe that Iran will give up its only leverage, and if you believe the Gulf states and the US will allow the “IRGC” to control 20% of the global energy flows, then my friend, you are highly mistaken.

Undoubtedly, there is much more to come before this war ends, and we will discuss the path forward in detail in the Geopolitics section (extensive analysis).

We are up 3.2% YTD compared to 1.56% YTD returns by the benchmark.

The next few days are crucial, and we may significantly underperform/outperform the benchmark due to the directional bets in our portfolio.

Let us begin today’s newsletter, where we will discuss in detail the oil market, macro data and cross-asset moves.

US/Geopolitics!

Since the war began on 28th February, we have received the first CPI report, which “partly” reflected the rise in oil prices.

The headline CPI came in at 3.3%, meeting expectations, while the Core CPI came in at 2.6% v/s expected 2.7%.

While energy prices were up 12.59% YoY, used car prices are exerting disinflationary pressure, with the measure down 3.18% YoY.

PS: We expect used car prices to reverse course and trend higher in the coming months, as evidenced by wholesale auction prices.

We have been articulating for the past few weeks that higher energy prices percolate into the CPI with a 2-3-quarter lag (higher goods inflation), as the CPI is a lagging indicator.

As of now, Core Goods inflation is benign at 0.021% MoM, and Core Services came in at 0.137% MoM.

JayPo’s popularised inflation measure, the Supercore (Services Ex-Shelter), came in at 3.14% YoY, with most of the increase driven by Transportation Services and medical care services.

ISM Services came in at 54.0 v/s expected 54.9.

However, as usual, the devil lies in the details.

ISM Services Prices Paid came in scorching hot at 70.7, indicating that the CPI is going vertical in the next few months.

Furthermore, while Prices Paid came in at the highest level since 2022, the Employment PMI came in at 45.2, the lowest since 2023, indicating early stagflationary signals.

On the contrary, Services activity seems robust, with New Orders jumping to 60.6.

Nevertheless, the income data have been horrendous.

Excluding current transfers, the Real Personal Disposable Income (adjusted for inflation) is now flat since liberation day last year.

Note that this is before the oil shock hit the US economy.

Furthermore, the real PCE is significantly higher than real personal income, as Americans have been drawing down their savings (also partly due to higher asset prices, which fuel the positive wealth effect).

If the “real” incomes fail to grow, we expect an imminent slowdown in consumption in the coming months.

We reiterate that consumer health was totally different when the oil shock of 2022 hit the global economy, compared with today, when consumers are fragile amid a soft, low-hire, low-fire labour market.

Geopolitics!

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The Dated Brent (physical) traded at $142 yesterday, its highest levels since the 2008 oil price spike.

As a result, the spread between Dated Brent/Frontline Brent Futures reached an all-time high of $24.

There is absolute panic in the oil markets, with a mad scramble by refiners to purchase every available physical barrel.

For those who aren’t aware of the supply-and-demand scenario in the oil markets, pre-war, supply, including all sanctioned oil, was around 109 mbpd, while demand was 103/4 mbpd, indicating a surplus of 5 mbpd. However, with the production shut-ins of around 10 mbpd post-war, we are in a deficit, with demand far outstripping supply.

Thus, unless demand destruction transpires or the Strait of Hormuz (SOH) reopens, expect the physical market tightness to persist.

On the other hand, we got a shocker in the private credit space as redemptions reached a mind boggling 22% of one of Blue Owl’s funds, demonstrating that the “music might have stopped playing”.

As we navigate turbulent times in the financial markets, we continue to outperform our benchmark, with a YTD return of 1.32% versus -1.15%.

Today, we examine the probable timeline of the Middle East conflict and delve into the macro universe to understand the cross-asset implications.

US/Equities/Bonds/Oil/Dollar/Gold/Silver!

We received a whole host of macro data this week.

We begin with retail sales, one of the most crucial metrics for tracking household spending amid multi-year high gas prices.

Note that we got February retail sales data, and since the war began on 28th February, we won’t know the effect of higher gas prices yet.

It was an all-around beat:

• Headline Retail sales at 0.6% v/s Exp. 0.5%.

• Retail sales ex auto at 0.5% v/s Exp. 0.3%.

• Control Group at 0.5% v/s Exp. 0.3%.

Some of the categories (sporting goods, clothing), including online, saw a massive YoY surge in sales.

Note that these are also the categories in which prices were significantly higher due to tariffs (and thus nominal retail sales were higher for these categories).

Note that over the six months ending in February, control retail sales and food services are up just 2.1% on an annualised basis.

With inflation running at 3%, the real retail sales (adjusted for inflation) have been subdued.

ISM Manufacturing came in at 52.4 v/s expected 51.5.

However, the surprise was the blowout Prices Paid, which came in at 78.3, the highest since June 2022.

Note that although the employment PMI has risen from its lows, it remains below 50, indicating contraction.

Our favourite indicator, New Orders Less Inventories, moved slightly lower from the highs. However, there are no danger signs yet.

Now let’s turn our attention to the labour market:

• JOLTS-1: JOLTS job openings came in at 6.946MM v/s expected 6.750MM. However, the devil lies in the details. JayPo’s favourite labour market indicator, Vacancies/Unemployed, fell again below 1 to 0.91, indicating weakness in the labour market. Furthermore, the quits rate fell to a cycle low of 1.9%.

  

• JOLTS-2: While Quit Rates fell to the cycle lows, the Hires Rate plunged to 3.1%, the lowest in six years. Furthermore, the layoff rate jumped again to 1.1%, though it remains below the cycle highs. The low-hire, low-fire environment may turn into low-hire, high-fire in the coming months if the energy crisis is prolonged and the tech layoffs rise.

  

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Nobody could have modelled the “pandemic”, the 2022 Russian invasion of Ukriane, “the tariff saga” of 2025 and the most largest disruption in the energy markets in history due to the Iran-Israel/US war of 2026.

Let’s examine 15 charts to analyse the global macro and the 2026 energy shock!

1. Led by a nearly 60% rise in crude oil prices in a single month, DBC is the top YTD performer.

   Thanks to the commodities outperformance, LATAM markets continued their winning streak with the benchmark ETF: ILF up 17% YTD.

   Gold lost its sheen after a stellar rally in January and is now up 8.6%.

   The US continues to underperform both its DM and EM peers. While the Emerging Market ETF EEM is up 3.8% YTD, the MSCI European ETF IEV is down 1% compared to the 4.4% loss for SPY and the 6% loss for the QQQ.

   Surprisingly, long-term bonds provided some cushion and outperformed the US equities.

   

2. It’s not only the tech sector that has been a laggard; rising private credit concerns have also led to a massive sell-off in financials, with XLF the worst performer YTD.

   Energy (XLE) has broken all records and seen the biggest outperformance relative to the S&P 500 since the 1990s.

   

3. The Leveraged Long/Short ETF Volumes indicator helps predict bottoms. However, during the 2022 bear market, the indicator slumped and stayed low.

   This is the one metric you should absolutely track.

   

4. The tech investors will have to endure extreme pain over the next few months (maybe years) as Mr Market resets valuations. Once known for hoarding cash and buybacks, the big tech companies are now turning net cash negative as FCF plummets due to trillions of dollars of capex.

   As a result, the S&P Tech forward PE valuation premium over the S&P 500 has compressed to 2019 levels.

   

5. While oil prices are hovering around $100/b, product prices are off the roof and well above 2022 levels.

   The biggest rise is seen in jet fuel prices, which have surpassed $250 in Singapore. We will see bankruptcies among airlines if prices persist for more than a quarter, and travellers will likely prefer short-haul destinations for vacations due to soaring airfares (inflation?).

   

6. It’s not only the fuel prices, but the transportation costs have also skyrocketed.

   The Baltic Dirty and Clean Tanker indices are now approaching record highs. Also note that the insurance premiums have also seen insane increases, leading to elevated freight costs.

   

7. Interestingly, energy’s share of consumer spending has fallen over the past few decades and is now less than 5%.

   However, the lowest 20% (bottom quintile) of consumers are the most affected by higher energy prices.

   Unsurprisingly, Trump’s approval rating has plummeted to record lows.

   

   

8. Consider it a coincidence, every US recession from the 1970s up to the Global Financial Crisis coincided with a doubling of oil prices.

   The oil spike during the 2022 Russia–Ukraine conflict did not trigger a recession due to the fiscal impulse and pandemic savings; however, as you remember, economists also called for a recession in 2022.

   Will we be second time lucky?

   

9. Thanks to the rise in energy prices, bond vigilantes wreaked havoc in the bond markets as Mr Market prices in a “RATE HIKE”.

   The moves have been extremely aggressive, with markets pricing in more than an 80 bps hike by the ECB due to energy-induced inflation.

   

10. The war’s macroeconomic aftereffects were visible in Germany, with the latest ZEW Survey shocking the street. ZEW Economic Sentiment collapsed to the negative territory (-0.5) from 58.3 reported in February.

    When we look at the internals, the manufacturing sector was responsible for the negative readings.

    Furthermore, chemicals will be the worst hit in the coming months as supply chain disruptions lead to force majeure and production cuts.

    

11. One of the biggest differences between the energy shocks of 2022 and 2026 is consumer health. Consumers were flush with excess savings accumulated during COVID-19 when the 2022 energy shock hit Europe.

    However, the UK’s labour market is extremely weak today, and consumer health has deteriorated significantly.

    Although markets are currently focused on the inflation shock, they have yet to fully price the potential growth shock.

    

    ---

12. One of the data points we place a lot of weight on for China is Total Social Financing (TSF).

    China’s banks extended 900 billion yuan ($130 billion) in new yuan loans in February, down from 4.71 trillion yuan in January and missing estimates.

    PS: Total social financing growth typically shows seasonal increases at quarter-end.

    

13. Two of the largest manufacturing giants in Asia, which depend on the Middle East for 80% of their needs, are Japan and South Korea.

    Furthermore, Japan receives the majority of its oil imports via the Strait of Hormuz, but if it utilises its SPR (which it has announced), it can manage its oil needs for more than six months.

    

14. While Oil in $$$ (Brent) is still miles away from its 2008 ATH ($150), oil prices in local currency have surpassed their ATHs.

    Ironically, except for the Taiwan Dollar ("heavily managed float"), among major non-China Asian economies, Brent crude has never been this expensive.

    

15. BONUS CHART: US software has witnessed a bloodbath as concerns rise post the release of Anthropic’s new models. As a result, US software v/s tech is now the cheapest on record.

    Some of the companies are trading at valuations last witnessed in the GFC or Covid. Time for bargain hunting?

    

Disclaimer

This publication and its author are not licensed investment professionals. The author & any other individuals associated with this newsletter are NOT registered as Securities broker-dealers or financial investment advisors with the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, or any other securities/regulatory authority. Nothing produced under Marquee Finance by Sagar should be construed as investment advice. Do your research and consult with your certified financial planner or other dedicated professional before making any investment decisions. Investments carry risk and may lose value; Marquee Finance By Sagar LLC, Marqueefinancebysagar.substack.com or Sagar Singh Setia is not responsible for loss of value; all investment decisions you make are yours alone

The AI story is on the cusp of a meltdown as MSFT enters into a long-term bear market.

The Oracle 5Y CDS is now at its highest level since the GFC, as market participants panic and seek avenues to hedge their tech exposure.

The tech investors will have to endure extreme pain over the next few months (maybe years) as Mr Market resets valuations, as companies' FCF plummets and the Mag7, once known for hoarding cash and buybacks, are now turning net cash negative.

For the first time since the war began, we have also begun writing about the “post-war” analysis, in which we discuss the macro outcome based on probable scenarios.

Some of the outcomes are now certain, given the geopolitical situation and the further escalation over the last 24 hours from both sides (and post the entry of the Houthis).

Paid subscribers can directly jump to the geopolitical section for the analysis.

Since the beginning of the year, we have, for the first time, reported a negative YTD return, and the PF is down 7 bps, compared with a 356 bps drawdown for the benchmark.

It is also our largest drawdown from the highs since inception, as we were of the view that the war would be short.

However, as we became certain of weak technicals and a protracted war, we reduced duration and initiated short positions, which have helped us limit our drawdowns.

Let’s dig deeper into the world of macro, geopolitics and cross-asset relationships.

Macro!

The first signs of the Middle East conflict taking a toll on consumers were visible in Germany’s GfK Consumer Confidence.

Note that last week we saw the first signs of worsening business sentiment as Germany faces significant headwinds from higher energy prices.

The GfK consumer sentiment index dropped by 3.2 points to -28.0, the weakest reading since 2024.

Furthermore, Income expectations have fallen back into negative territory, while economic expectations have declined to their lowest level since Dec 2022.

If there is no respite in energy prices in the coming weeks, expect a “recessionary” reading across both soft and hard data.

In the UK, headline CPI came in line with expectations.

The February Consumer Prices Index, including owner-occupiers’ housing costs (CPIH), rose by 3.2%.

Service price inflation was hotter than expected, and core prices rose to 3.2%, up from 3.1%.

However, the good news was that the CPI all-services index rose by 4.3% YoY, down from 4.4% in January.

The rate is the lowest since March 2022, when it was 4.0%.

Clothing made the largest upward contribution, while Alcohol and tobacco put downward pressure on the CPI.

Note that these readings were before oil prices surged. BOE has already raised the CPI target.

Furthermore, there are unintended second-order effects of a spike in energy prices, and we expect CPI to surprise higher if the war is prolonged.

In the land of the rising sun, the headline CPI fell to 1.3% YoY, its lowest level since March 2022.

The disinflationary impulse stemmed from government fuel subsidies and the fall in rice prices (base effect).

The Core CPI, which includes oil products but excludes fresh food prices, rose by 1.6% YoY, missing economists’ median estimate for a 1.7% annual gain.

Core-Core inflation, which excludes food and energy, came in at 2.5%.

Since the Japanese government has vowed to keep fuel prices low (subsidies), we can expect the CPI to remain below 3% despite higher gas/oil prices.

However, a prolonged disruption could lead to higher prices across the board.

Equities!

In equities, we will stick with our allocation and thesis that

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In a stunning development this week, Iran attacked Qatar’s largest gas field in retaliation, and as a result, 17% of Qatar’s LNG capacity was wiped out for the next five years with an estimated $20 billion loss in annual revenues at current gas prices.

While Asia will be the worst hit, Europe is also facing rising pressure, having decided to phase out Russian gas and now facing a dilemma after Qatar announced force majeure on long-term LNG contracts for up to five years for supplies bound for Italy, Belgium, South Korea, and China.

While the 2022 energy shock following the Russia-Ukraine war was driven by “fear” of disruption, we are witnessing actual supply disruptions as the Strait of Hormuz (SOH) remains closed.

Furthermore, production shutdowns (now totalling 7 mbpd+ across the GCC) will ensure that, even when SOH opens, the situation will take months to normalise, ensuring higher-for-longer oil prices.

As physical tightness deepens, this week saw record prices in Oman and Dubai as Asian refiners scrambled for physical barrels.

While the Trump administration was successful in curbing the WTI Prices (can’t remain decoupled for long, though), Brent has consistently traded above $100, with futures trading as high as $119 during the week.

The disruption is now spreading across commodities as the Middle East accounts for a lion’s share in critical petroleum products, helium and fertilisers.

If SOH closure is prolonged, supply chains will be disrupted, triggering an inflationary wave similar to that during COVID. We will discuss in detail later.

Last week, we wrote the 4th edition of Explosive Setup, and these were the targets we mentioned:

• Gold: $4200/4300

• Silver: $62

• Oil: $120

• 10Y: 4.35/4.5%

• DXY: 102

• S&P500: 6200/6300

• DAX: 22k

• CAC40: 7500

• FTSE: 9700

Except for the DXY, we saw our targets nearly achieved across assets as the contagion, which began mid-week, spread after markets realised that the war is not getting over anytime soon, with boots on the ground now a high probability event (we discuss later in the geopolitics section).

In fact, there was no safe haven and thus no place to hide. Ironically, the only asset that has weathered the storm has been BTC.

We had multiple central bank meetings this week, and everyone was hawkish amid the recent rise in energy prices.

We reduced duration earlier in the week and, as a result, were able to limit the drawdown with the PF still outperforming the benchmark by about 250 bps.

Let’s begin today’s newsletter and comprehend the extremely elevated cross-asset moves!

US/Equities/Bonds/Oil/Dollar/Gold/Silver!

We got a really hot PPI print this week.

Headline PPI: +0.7% MoM vs. +0.3% est.
Core PPI (ex. food & energy): +0.5% MoM vs. +0.3% est.

We saw higher prices across the basket.

The costs of processed goods for intermediate demand rose 1.6%, the largest increase since August 2023.

Whereas farm products were up 0.43% MoM, with fresh & dry vegetables alone up nearly 49%.

Note that Energy was up 2.3% MoM, before the war broke out and gas prices surged by more than 33% MoM.

When we got the FOMC decision, markets were still pricing in a rate cut for 2026.

Furthermore, the Fed's dot plots also predicted one more rate cut this year.

However, by the end of the week, the rate cut was reversed into a rate hike as yields surged and markets feared prolonged disruption.

Digging deeper, once again, the surprise was further moved up in the longer run rate, aka the neutral rate, to 3.1% from 3%.

We have been demonstrating how the Fed has been quietly moving up the long-run rate since the last two years suggesting that we are never returning to the 2% inflation again (structural rise in inflation).

The Core PCE projections were raised by 20 bps to 2.7%, likely factoring in higher energy prices.

Last week, we mentioned that JayPo will be concerned by the inflation expectations. He commented:

“Near-term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by supply disruptions in the Middle East.”

Unsurprisingly, JayPo has been watching Mr Market, which has been ruthless in raising the 1Y Inflation expectations to more than 5%.

Interestingly, he also mentioned that the rollout of AI is “inflationary”, leading to a higher neutral rate (came as a surprise to us, given the narrative that AI will lead to productivity gains that are deflationary).

“So, remember, in the short-term what’s happening is we’re building data centers everywhere.

And that’s actually putting pressure on all kinds of goods and services that go into building these things.

So that’s actually probably pushing inflation up at the margin. In addition, it probably raises the neutral rate.”

The rationale behind one rate cut in the projections was explained:

“We also think it’s important though to keep policy either mildly restrictive, or close to that. But not too restrictive because of the weakness in -- the downside risk in the labor market.”

In the last few months, JayPo has been discussing a new inflation measure, “Core PCE Ex-Tariffs,” as the Fed believes tariff-led goods inflation is “transitory”.

Note that last week we highlighted the segments (recreational goods, apparel, etc.) affected by tariffs, leading to a surge in prices.

This week, we further got insights from JayPo:

“Total core inflation, it’s about 3 %, and some big chunk of that, between a half and three-quarters is actually tariffs, so we’re looking for progress on that.”

While we believe most of the pass-through is complete, skyrocketing oil prices will further stoke inflation, albeit with a 2-3 quarter lag.

Last week, we also mentioned that we can’t comment on the macro outlook until we are sure about how long the war will last and how much supply disruption we will face across sectors.

We had JayPo mentioning the same this week.

“If we have a long period of much higher gas prices, that’s going to weigh on consumption, that will weigh on disposable personal income, and it’ll weigh on consumption. But we don’t know if that’s going to happen, it -- something quite different from that, we might have much lower than expected pass-through”.

It’s just, we don’t know what the effects of this will be, and really, no one does.

It’ll come down to how long the current situation lasts, and then what are the effects on prices and then how do consumers react and that kind of thing.

Note that gasoline and diesel prices have skyrocketed by more than 35%, which will squeeze households, especially lower-income households.

Nevertheless, if the disruption is short-lived, we might see a few months of lower consumption (also keep in mind that higher tax refunds might cushion some of the hit).

PLEASE READ CAREFULLY:

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We might be in the middle of a “man-made” black swan event as Iran throttles the Strait of Hormuz and has choked the supply chain of a whole host of commodities, fertilisers, chemicals and other raw materials.

It has been nearly two weeks since the Strait of Hormuz was closed, and we are already witnessing enormous shortages across Asia (80% of all the flows from the Strait of Hormuz go to Asia).

While the paper market is trading around $100, there is absolute panic in the physical market, with the Dubai Physical Swaps trading at a mind-boggling $140/b.

The last six years have been extremely challenging for the global economy, as we have been bombarded by various exogenous shocks: COVID-19, the Russia-Ukraine War, the Trade War, and the US-Israel-Iran War.

Note that these shocks have upended the global financial markets and the geopolitical setup.

As a result, we have seen multiple 6-7 sigma moves across financial markets over the past few years.

Therefore, there is a need to develop a robust risk management system as wild, volatile moves become more common and tail risks become harder to predict.

While there is uncertainty about how the war will progress, we have always believed that the charts don’t lie and the price action is supreme.

The cross-asset charts indicate that the market is poised for significant moves, and thus, we may be ready for an “Explosive Setup”.

We are up 1.64% YTD against the benchmark performance of -1.24%, thus outperforming the benchmark by 288 bps.

Let us now take a deep dive into the macro and geopolitical landscape and understand the explosive setup we foresee across markets.

US/Equities/Bonds/Oil/Dollar/Gold/Silver/BTC!

The macro universe was dominated by the CPI data this week in the US.

The Headline CPI (all items) came in at 2.4% YoY/+0.27% MoM, and the core CPI came in at 2.5% YoY/+0.22% MoM, meeting market expectations.

When we dig deeper, while used cars and trucks reported deflation, categories such as Apparel and energy reported positive increases, MoM.

Note that the rise in energy was before the war broke out, and oil crossed $100.

Furthermore, when we zoom out, the segments affected by tariffs (Apparel, household supplies, and other recreational goods) continue to see price increases, putting upward pressure on the CPI.

The disinflationary pressures are seen in Used Cars and Prescription Drugs (thanks to POTUS measures on prescription drugs).

JayPo popularised the Supercore CPI (Services Ex-Shelter), which is still stubborn.

Supercore CPI came in at YoY 2.75%/ MoM +0.35% .

JayPo’s favourite inflation indicator is PCE.

PCE came in at 2.8% YoY v/s Exp. 2.9% and the Core PCE came in at 3.1% YoY v/s Exp. 3.1%.

When we decompose the core PCE, the Acyclical Core PCE (financials, healthcare, clothing, etc) has been rising and seems to have bottomed out.

If energy prices remain elevated for extended periods, expect higher prices to percolate through the economy, potentially causing inflation across all sectors.

The Atlanta Fed published detailed CPI/PCE data, and although inflation has cooled since last year, it’s still well above the Fed’s 2% mandate.

We also got the GDP data for Q4, which was revised lower to 0.7% (estimate of 1.4%).

The culprit has been Core Cyclical GDP, which has decelerated significantly.

The war in Iran will have grave consequences for the economy, and we will assess the implications once it is over.

However, near-term impact will be a spike in inflation even if the war ends in March.

We have historical data to prove it.

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We saw an unprecedented price action in oil this week.

Producers rushing to hedge (hedging demand), a historic short squeeze, and speculative frenzy (USO witnessed the biggest day of retail net buying yesterday) led to a historic week, with Crude futures posting the biggest weekly jump since 1985, rising 34%.

Whenever the Iran-US/Israel war was discussed in the past, the worst-case scenario involved the closure of the Strait of Hormuz.

For those who are unaware of the significance of the Strait of Hormuz, let us explain to you:

More than 20 mbpd of crude flows through the Strait of Hormuz, roughly 20% of total world oil consumption (per day).

Furthermore, 84% of the crude from the Strait goes to only three countries: China, India and South Korea.

In the last week, Hormuz traffic has come to a complete halt.

This implies that we just witnessed one of the biggest disruptions in history.

Today, we will discuss the consequences of the disruption and model different scenarios and the likely cross-asset movements. (Paid subscribers can directly jump to the geopolitical section for war/oil analysis.)

Despite an extremely volatile environment, we continue to outperform the benchmark by more than 250 bps.

US/Equities/Bonds/Oil/Gold/Silver/Dollar!

Our favourite indicator of the cyclical economy has been the ISM Manufacturing Index.

Note that since 2022, ISM Manufacturing has been in a contraction zone as “manufacturing” and housing were in a recession.

However, since the last two months, there has been a notable recovery in the ISM Manufacturing.

We are now in an expansionary zone (greater than 50) with all the sub-components reporting satisfactory growth (except Employment, which is still below 50: contraction, but has been trending up).

However, when we dig deeper, the worrying signal is the ISM Manufacturing Prices Paid, which came in scorching hot at 70.5.

With oil prices on a tear, we don’t expect it to fall anytime soon, which will lead to higher prices for manufactured products in the coming months.

Our leading indicator for ISM Manufacturing is New Orders Less Inventories, which is buoyant and suggests that the manufacturing recovery will continue unabated.

ISM Services also came in higher than expected (the highest since 2022), with most subcomponents reporting robust growth.

The encouraging part was also the ISM Services Prices Paid, which fell MoM, and the trend seems to be lower (might change with elevated oil prices).

We discussed last month that with ISM Services Prices peaking, we might have seen a peak in the CPI due to the tight correlation between the two series.

Retail Sales came in slightly better than estimates.

Headline Retail Sales -0.2%, Exp. -0.3%
Retail Sales ex auto 0.0%, Exp. 0.0%
Retail Sales Control Group 0.3%, Exp. 0.3%

However, the housing-related components are still weak.

We expect retail sales to moderate further if oil prices remain above $80-90 for a prolonged period, as this will squeeze American households, given that real incomes have been declining for more than a year now.

Now let’s jump to the macro shocker of the week:

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With oil rallying to $67, Gold to $5200, equity VIX stubborn at 20, and the bond markets sensing a risk-off mode despite a hot PPI, Mr Market, to some extent, priced in a war.

However, there are different scenarios which can play out in the coming days. The response from Iran and the participation of other Gulf countries will dictate the intensity and duration of the war.

We will discuss the probable scenarios later on.

We closed at YTD highs and are up by 5.32%, compared to 3.3% for the benchmark.

The bond rally has been a tailwind for us, along with our positions in the US and RoW.

Let’s take a deep dive into the cross-asset universe!

Equities!

Roughly 18 months ago, we introduced the Thematic Investing Series, in which we discussed themes that are likely to outperform the markets in the coming decade.

We invested in several of the stocks and have delivered 6-7 multibaggers in the Thematic Investing series.

In Thematic Investing Part 1 & 2, we researched and analysed the Aerospace and Defence sector in detail and bought two stocks (it’s an equal-weight portfolio).

The equal-weighted PF outperformed the benchmark ITA ETF for most of the time since inception and has generated significant alpha.

While we didn’t buy the others due to valuation concerns, one of the recommended stocks turned out to be a multi-bagger.

In October 2023, we wrote about a theme which we believed had long-term potential.

Although there have been several challenges since we wrote the piece, especially the demand for luxury goods in the world’s largest market (China), we have been able to deliver superior returns.

We finalised two stocks and are currently holding one stock in the PF (purchased it late).

We are up 58% on Thematic Investing Part-3, outperforming the benchmark LUX ETF by a huge margin.

In Thematic Investing-4, we were early to the commodity supercycle, believing that the massive green transition would be a boon for the industry.

Thematic Investing Part-4 is an equalweight PF of 4 stocks.

We are up 81% compared to 87% returns for the benchmark ETF XME.

Last year, after a hiatus of more than a year, we wrote Thematic Investing-5, in which we discussed stocks that will benefit from billions of dollars in hyperscaler capex (particularly data centres).

In just one year, we are up 72% as one of the stocks has turned a multi-bagger (up 5X since liberation day).

Furthermore, in August last year, as tariffs took hold, there were concerns about stagflation in the US economy.

We formed a stagflation basket at that time, which is up 10% since inception compared to 5% for the benchmark.

PS: Benchmark here is 60% ACWI and 40% GLAG (SPDR Bloomberg Global Aggregate).

Except for these, we were in the process of writing Thematic Investing Part-6, which we never completed, but recommended a stock where we made a cool 30% returns last year. The Thematic Investing Part-6 was about the electrification theme.

Note that we still hold 1 position (an ETF) in the Portfolio dedicated to the electrification theme, which we believe will outperform the broader markets due to the gigantic AI rollout.

Before we proceed further, paid subscribers can find the list of all the stocks covered in Thematic Investing Series in the spreadsheet.

Since the last 15-18 months, we have been of the view that the Rest of the World (RoW) would outperform the US equity markets in the coming years, as the weight of the US in the ACWI Index has reached unprecedented levels, and the ROW has underperformed the US since the 2008 GFC.

Since Liberation Day, we have seen peaks in the SPY/EEM and SPY/VGK ratios, indicating that Emerging Markets and Europe have outperformed the US.

When we dig deeper, the outperformance was led by only 3 stocks as the flagship EEM ETF saw massive gains due to South Korea (Samsung and SK Hynix) and Taiwan (TSMC).

Furthermore, Latin America, led by Brazil and Peru, has been the outperformers due to the commodity gains we have witnessed in the last few months.

We believe that while the EMs will continue to outperform, the rally will broaden in the coming months, and we are very well prepared for it.

In developed markets, Japan and the UK have been the biggest outperformers YTD (the two markets outperforming the benchmark EFA ETF), and ironically, Japanese markets have witnessed a sea-change with valuations now approaching levels last seen decades ago.

Note that all the returns mentioned above are in dollars.

Since most currencies have significantly appreciated against the dollar, the returns have amplified.

While the benchmark indices (S&P 500, NDX) are subdued, small caps and Dow Jones have been relative outperformers.

In fact, when we dig deeper, some of the constituents have been massive outperformers.

The energy sector has witnessed massive short covering and is the biggest gainer YTD (XLE is up 25%).

Other cyclical sectors, such as XLB, XLI and XLRE, have also given double-digit returns, while consumer staples, led by Walmart, is up a whopping 16%!

As private credit concerns rise, especially after the default of the UK-based MFS, banks took a massive hit yesterday (also post Dimon warning about structured products in the market, similar to what transpired before the 2008 GFC).

As a result, XLF is now the worst performer YTD.

XLK and XLY (due to AMZN) also posted negative returns amid concerns about hyperscaler capex.

Equity Charts (Monthly)!

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This week, we were bombarded by unforeseen news across the spectrum:

• Blue Owl’s concerns.

• The Tariff Saga.

• The Geopolitical Drama.

We will discuss the Blue Owl story in detail in the introductory note and the Tariff Saga in the US section. Note that we covered the Geopolitical situation in chat this week.

For the first time since Wall Street raised alarms about issues in the private credit industry, the administration has acknowledged them.

“Don’t want rotten PE Assets dumped into 401(K)’s”- Bessent.

“Our job is to make sure the regulated system is not affected by problems in private credit”- Bessent.

Blue Owl announced a shocker this week, permanently restricting withdrawals from one of its retail-focused debt funds.

Furthermore, Blue Owl sold $1.4 billion in loan assets from three of its funds in a “fire sale” to generate liquidity for redemptions.

Although Blue Owl was able to sell the loans in the recent transaction at just below par, the deal itself was questionable, as one of the buyers was Blue Owl’s insurance arm and thus a RPT (Related-Party Transaction).

Note that the GFC experience teaches us that high-quality liquid assets are sold first, and the “trash” (low-quality, illiquid) assets are sold at enormous haircuts/discounts later, when the situation deteriorates at the industry level, and liquidity evaporates.

Note that, per management, while some of Blue Owl’s funds have software exposure as high as 30%, the total exposure is 8% of AUM.

Thus, we can expect a halt to redemptions in funds with high software exposure.

The markets have been sensing trouble in private credit, and as a result, we have witnessed carnage in the industry leaders.

Note that there has been a high correlation with the software sell-off (as shown in the chart via the flagship ETF IGV).

Another quake the market completely ignored was Blue Owl's inability to raise debt for the CoreWeave Data Centre project, indicating that the credit downgrade and the rise in the CDS of companies like CoreWeave and Oracle are derailing the capex plans.

While this might seem an isolated event due to a company-specific issue (CoreWeave), we can’t ignore the fact that the OpenAI ecosystem is a circular financing scheme which might fall apart if even one of the dominoes falls.

While the benchmark closed at YTD highs, we closed just shy of highs (5 bps lower) and are up 4.81% YTD.

Let’s dive into the macro universe and comprehend the cross-asset price action.

US/Equities/Bonds/Gold/Silver/Oil/Dollar!

The Supreme Court, after deferring the verdict on IEEPA tariffs multiple times, finally announced it yesterday and, with a 6-3 majority, struck down the tariffs in a historic judgment.

According to the YALE Budget Lab, after the SCOTUS judgment, the effective tariff rate fell from 16.9% to 9.1%.

After the imposition of 10% tariffs under Section 122 of the 1974 Trade Act, the effective tariff rate is around 13% (due to certain exemptions).

Note that we believe we might face further litigation, as Section 122 of the 1974 Trade Act can’t be used in the current macro regime to impose tariffs.

Note that BoP (Balance of Payments) deficits are entirely different from the trade deficits.

On the flip side, Trump refrained from imposing a 15% tariff (the maximum he could have imposed), which is a tailwind for a risk rally.

We believe it’s a measured decision, as Treasury Secretary Bessent confirmed (in prepared remarks) that using Section 122, with potentially enhanced Section 232 and Section 301 tariffs, will result in virtually unchanged tariff revenue in 2026, allaying bond market fears.

Furthermore, as the trade deals are signed, the tariffs will be imposed at the negotiated rates until the above-mentioned sections are enacted.

Thus, we don’t foresee a major disruption, and, as mentioned, an overall reduction in tariffs by roughly 200 bps from the current 16.9% (before the SCOTUS order) will be stimulative and margin-accretive for firms that have fully passed on the tariffs.

Now let’s jump to the macro data.

We received the Fed’s preferred inflation gauge, the PCE, yesterday.

The Headline PCE rose 0.4%, compared with the +0.3% consensus. (2.9% rise YoY, highest since March 2024)

The Core PCE also rose +0.4% M/M, above the +0.3% consensus and +0.2% in the previous month (a 3% YoY rise, the highest since November 2023).

Since the rise was due to Core Goods, we believe that as old inventory replenishes, the tariffs are responsible for the higher reading.

The one risk that we flagged last month as well, and which is now a unanimous concern among market participants, is the:

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The following stat says it all:

“Over the last 8 sessions, 115 stocks in the S&P 500 have declined 7% or more in a single day.

The average drawdown when that happens is 34%. Right now we're 1.5% below the all-time high.”

Markets are pricing in an AI-led disruption that will destroy well-established multi-billion-dollar businesses “overnight”.

The fear was visible in markets when a little-known former Karaoke Company worth $6 million wiped out billions of dollars in wealth in the logistics sector.

Furthermore, markets are pricing in a scenario in which automation and AI-led adoption will lead to millions of white-collar layoffs, triggering a recession. As a result, we saw massive move in bond markets.

Undoubtedly, portfolios tilted heavily towards tech across the board are in complete despair, comparable to COVID, when the index crashed by upwards of 30%.

Thanks to the bond rally, we hit fresh YTD highs yesterday and are now up 4.85% compared to 2.56% for the benchmark.

Let’s analyse global macro releases and understand cross-asset moves!

PS: A gentle reminder to new subscribers to avoid paying via Apple Pay as it charges enormous fees. Furthermore, one should download the Substack App and switch on the notifications to receive the updates on chat.

US/Equities/Bonds/Gold/Copper/Oil/Dollar!

The CPI came in slightly softer than expected, allaying fears of a second wave of inflation.

The headline CPI came in at 2.4% YoY (the lowest since May 2025), while the Core CPI came in at 2.5% YoY (the slowest since March 2021).

When we dig deeper, we observe that energy and used cars were responsible for pulling CPI down, while Transportation services saw a huge jump ( a likely January effect).

JayPo’s favourite metric during the 2022 rate hikes was the Supercore (Services Ex-Housing).

It has been sticky in the past few months, but saw a huge rise in January due to a one-off.

Higher Motor Vehicle Fees and Public transportation led the rise in Supercore.

JayPo introduced another CPI measure, Core CPI Ex-Tariffs, in the last few meetings to gauge the underlying CPI rise ex-tariffs.

When we dig deeper, the Core Goods is where we witness the impact of the tariffs.

The Tariff-Sensitive Sectors MoM Inflation:
•Other Goods: +1.07%
•Recreation: +0.63%
•Apparel: +0.31%

Note that these are import-heavy categories and account for a large share of core goods inflation.

One of the categories which is putting downward pressure on CPI and is expected to be a tailwind for disinflation in the coming months is the Prescription drugs (we all know the reasons for the same).

Retail Sales missed by a wide margin, coming in at 0% MoM vs the expected +0.4% MoM.

Retail Sales ex auto also came in at 0% MoM, vs expected +0.4% MoM.

Retail Sales Control Group came in at -0.1% MoM v/s expected +0.4% MoM.

Digging deeper, we discover that many categories saw a MoM decline, led by furniture and clothing.

We believe the Arctic storm that engulfed the US was partly responsible for this, and we need to wait for data in the coming months to determine the extent of the weakness in consumption.

Nonetheless, nominal retail sales have been sluggish in the past few months.

Now let’s jump to the positive surprise of the week:

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The Fear and Greed Index entered the extreme fear zone on Thursday, just before we saw a massive rebound yesterday.

In fact, Dow Jones has been on a one-way up and touched all-time highs.

It’s on a historic spree, as we will likely close up this month, marking the 10th consecutive green candle for the Dow.

Guess what?

This was last seen in 1958-1959.

Yes, what we are witnessing is not a risk-off/risk-on move, but a massive de-grossing of the overowned tech names and a rotation of billions of dollars of capital into value/real economy stocks.

There is a macro reason behind it, which we will explore in detail with charts later.

We were fortunate to be invested in the right place at the right time, and as a result, we have begun the year with a bang.

We are up 3.4% YTD and have beaten the benchmark for the most of 2026.

Let’s begin today’s newsletter and examine the cross-asset movements with a macro lens!

US/Equities/Bonds/Gold/Silver/BTC/Oil/Dollar!

Our favourite measure for tracking cyclical activity in the US is the ISM Manufacturing Index, which has successfully predicted the peaks and troughs of past business cycles.

ISM Manufacturing massively surprised on the upside.

It was an all-around beat with every sub-component (ex- employment & inventories) registering expansion.

Our favourite indicator is New Orders Less Inventories, which had been indicating recovery for the headline index, but such a significant beat wasn’t expected.

If the trend continues (which we expect it to), the cyclical economy, which has been struggling for the last 2-3 years, will lead to significant gains for companies focused on the real/old economy.

In fact, the MoM surge in ISM Manufacturing was the second largest of the past 30 years!

Nevertheless, amid signs of revival, the survey comments indicate that softness persisted across industries.

ISM Services met expectations, coming in at 53.8, indicating expansion.

However, the ISM Services Prices index once again accelerated and remains stubbornly elevated.

If the uptrend here continues, the CPI might rebound and cross 3%, a problematic scenario for the Fed given its dual mandate.

Labour Market!

• ISM Employment: A cyclical recovery augurs well for the labour market. This was visible in the ISM Manufacturing Employment data, which saw the highest reading in more than a year. However, the ISM Services Employment cooled a bit but remained above 50, indicating expansion.

  

• JOLTS-1: JayPo’s favourite labour market indicator:

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The biggest risks for 2026 are giving jitters, as BTC, private equity giants, and software names are witnessing an unbelievable bloodbath.

Let’s examine 16 charts to analyse the global macro and cross-asset movements in the global financial markets.

1. In continuation of the 2025 trend, Gold, along with LATAM equities, has been ripping since the beginning of the year.

   While the LATAM benchmark ETF: ILF is up 20.5% YTD, Gold is up by more than 14%.

   The US continues to underperform both its DM and EM peers. While the Emerging Market ETF EEM is up 8.94% YTD, the MSCI European ETF IEV is up 5% compared to the 1.1% gain in SPY and the 0.3% gain in QQQ.

   Thanks to the JGB rout, long-term bonds remain the biggest underperformers, with the flagship TLT flat YTD.

   

2. Historical data suggests that 87% of the time when January yielded positive returns for the S&P 500, the year gave a positive return.

   Furthermore, the average gain was 12.24%.

   

   

3. When we dig deeper into the equity market internals, we can see we hit an inflection point in October last year, as value has outperformed growth since then.

   We can cite multiple reasons for the same, ranging from weakness in tech, earnings recovery in value stocks and valuation comfort.

   

4. Looking at sovereign bonds, the data indicate that positioning has become extremely light as USTs have been in a bear market.

   Moreso, the valuations are now attractive. Thus, we won’t be surprised by a “rally” in bonds.

   

5. While USTs are unloved, corporate bonds have been witnessing massive inflows.

   The Global Corporate Bond spreads, as measured by the BBG Global Corporate Statistics Index, have reached pre-GFC levels.
   
   Even the High Yield (HY) spreads are at post-COVID lows and can’t get any tighter than they are today.

   

6. Coming to macro, we are witnessing a contraction in real disposable personal income as incomes have failed to grow despite higher GDP growth.

   On the contrary, the Real PCE has been trending higher, suggesting that lower-income consumers are drawing down their savings, while the spending is buoyant in the high-income consumers due to the wealth effect.

   

7. Nothing moves the needle at the Fed as a weaker labour market.

   While the labour market remains in a low-fire, low-hire paradigm, JayPo’s favourite indicator (Vacancies/Unemployed) has plummeted to 2017 levels.

   

8. Undoubtedly, there has been a cyclical recovery in the US economy, as the recently released ISM data portrays; however, the Heavy Truck Sales have fallen off a cliff.

   While a deeper investigation into the reasons is needed, some market participants believe it’s online sales that have eroded demand.

   

9. Across the Atlantic, industrial orders in Germany climbed by a whopping 5.6% MoM, led by large defence orders.

   If the uptrend remains intact, we expect the German economy to enter a gradual recovery path.

   While growth seems to be recovering, CPI is back below 2%, confirming that the ECB engineered a soft landing.

   

10. The UK has been facing a deterioration in the labour market and a slowing economic activity, led by weak consumption.

    However, there is a ray of hope, as the UK PMI future output expectations have surged to a multi-year high, suggesting a recovery might be on the horizon.

    

11. There is no end to the Chinese property crisis, as the balance-sheet recession and the massive overbuilding of the past decade, coupled with worsening demographics, are leading to a freefall in home prices.

    Unsurprisingly, the existing home prices are down 30 to 40% since mid-2021 in the 4 main cities.

    

12. The Japanese Government Bond (JGB) market once again led a global bond sell-off after Japanese Prime Minister Takaichi announced a snap election.

    The two-day move in the 30Y JGB was a 6SD move, prompting Bessent to call his counterpart to soothe nerves.

    For the stability of global financial markets, moves in the Far East matter more than ever.

    

13. January saw the US take an unprecedented action by arresting Venezuelan President Maduro and his wife from their home in an unimaginable operation conducted by the elite Delta Force.

    Behind the geopolitical win, the motive was to tap the billions of barrels of heavy crude that Venezuela possess, which will be beneficial for US refineries.

    

    ---

14. Silver saw extremely historic moves in January, and at one point, it was up more than 45% (the highest monthly gain since the Hunt Brothers squeeze).

    Nevertheless, despite an enormous 40% fall from the peak, Silver closed the month 19% up, and created history with 9 consecutive green candles and 6 consecutive closings above the upper Bollinger Band.

    It was mayhem for traders as traditional technical analysis completely failed.

    

    ---

15. It was not just Precious Metals and base metals that witnessed insane moves; natural gas, notorious among traders as the most volatile asset class on the planet, had the biggest move in the last 35 years.

    The US benchmark natural gas price rose 75% over just five trading sessions as the US was hit with one of the worst snowstorms of the last five decades.

    

16. BONUS CHART: While deterioration in demographics has been a significant concern in South Korea and Japan, it’s China which is undergoing a rapid population decline. Due to the infamous one-child policy, deaths have exceeded new births for the last 4 consecutive years. As a result, China’s population has plunged, leading to unforeseen consequences for the government, people and corporations.

    

Disclaimer

This publication and its author are not licensed investment professionals. The author & any other individuals associated with this newsletter are NOT registered as Securities broker-dealers or financial investment advisors with the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission, or any other securities/regulatory authority. Nothing produced under Marquee Finance by Sagar should be construed as investment advice. Do your research and consult with your certified financial planner or other dedicated professional before making any investment decisions. Investments carry risk and may lose value; Marquee Finance By Sagar LLC, Marqueefinancebysagar.substack.com or Sagar Singh Setia is not responsible for loss of value; all investment decisions you make are yours alone

As it’s been happening since the beginning of Trump’s Presidency, we once again saw a chaotic week across markets as the weekend tariff announcement, along with the move in Japanese bond markets (a 2-day, 6 SD move), led to sharp cross-asset volatility.

We again got a TACO from Trump on Wednesday, as he said a "framework of a future deal" was sealed on Greenland. Ironically, the European Allies still have no clue about the deal, as negotiations are ongoing.

Nonetheless, the biggest highlight of the week, according to us, was the greenback's price action yesterday.

We wrote last month that the precious metals (PMs) might be preempting the move in the dollar as they did last year as well.

However, the extent of the PM's move has stunned everybody; we will discuss it in detail later.

Furthermore, Carney’s speech at Davos was an eye-opener as a “new world order” is now becoming a consensus among the political leaders as well.

A must listen!

As the world gears up for an unprecedented shake-up in trade, defence spending, and how relationships are forged in the future, investing and trading financial markets will require a deep understanding of macroeconomics and geopolitics.

We are up 2.07% YTD as the lower dollar pumps our unhedged equity ETFs.

Furthermore, our bet on value outperforming growth has helped to generate alpha early in the year.

Let’s dig deeper into the macro universe and comprehend the cross-asset price action!

PS: We will be in Helsinki for a few days starting on Sunday. If anybody in Finland wants to grab a coffee, please DM on Substack/LinkedIn.

US/Equities/Bonds/Gold/Silver/Oil/Dollar!

It was a data-light week in the US as all the action shifted to Davos and Trump’s Greenland ambitions.

Nonetheless, we received the GDP data and the PCE, the Fed’s preferred gauge of inflation.

Although we are not a big fan of the GDP because of its lagging nature, we would analyse the breakdown to understand what’s driving real growth higher in the US.

Note that the last three quarters have been volatile due to front-loading of tariffs and a surge in net exports in Q3, driven by higher gold exports.

We saw a 4.37% YoY growth in GDP, driven by higher consumption.

However, a concern is that consumption is higher not because of income growth, but because consumers are drawing on their savings, which has led to a record-low savings rate.

PS: Note that there is also an element of higher-income consumers spending more due to the positive wealth effect as asset prices reach record highs.

When analysing income growth, real incomes net of transfers are up just 0.5% over the last 12 months, well below normal levels.

One interesting stat has been the “NET” Private Domestic Investment as % of GDP (subtracts the depreciation from the calculation).

We saw a surge in the last year of Biden’s presidency, driven by the CHIPS Act and the Inflation Reduction ACT (IRA), leading to higher investment.

However, due to high depreciation and a decline in manufacturing incentives, we are witnessing a decline in Net Private Domestic Investment as % of GDP.

Thus, the massive reshoring claimed by the Trump administration has not yet appeared in the numbers and is not aiding US growth.

Moving on to PCE, headline PCE came in at 2.8% YoY v/s Exp. 2.8% and the
Core PCE came in at 2.8% YoY v/s Exp. 2.8%.

Digging deeper, Cyclical components are PCE items whose prices are more sensitive to overall economic conditions, such as housing, recreation services, and food services. Cyclical components account for about 40% of PCE in the US.

Due to a free fall in rent inflation, we are now witnessing the cyclical component of inflation at its lowest since early 2022, when the “transitory” mistake led to a steep rise in inflation.

Nonetheless, the acyclical component is proving sticky and has been rising due to the tariff impact.

We can conclude this by digging further.

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Last weekend, we saw the world’s most powerful central banker release a video message after being subpoenaed by the DOJ.

This unprecedented action, along with the tensions in Iran and the uncertainty about the Fed Chair, led to wild cross-asset swings.

However, despite a rise in the equity volatility as measured by VIX, there is an uneasy “calm” in the bond markets.

The spreads on Global Corporate Bonds, as measured by the BBG Global Corporate Statistics Index, have reached pre-GFC levels.

“Credit is the air that financial markets breathe, and when the air is poisoned, there's no place to hide.” — Charles R. Morris.

For those who have been in the markets for a long time know that the first warning signs always emerge in the credit markets, and as of now, there is none.

The High Yield (HY) spreads are at post covid lows and can’t get any tighter than they are today.

Thus, any widening in spreads should be watched closely as it would have cross-asset ramifications.

It has been a good start to the year as we are up 1.73% and are outperforming the benchmark by 40 bps.

Let’s dig deeper into the macro universe and analyse the cross-asset moves!

US/Bonds/Equities/Gold/Silver/Oil/Dollar/BTC!

November PPI, which was due on 11th December, came in this week, a long delay due to the government shutdown.

Both Core PPI and PPI came in slightly higher at 3% YoY, against expectations of 2.7%.

When we analyse the internals, higher commodity prices are now leading to higher prices.

Note that we have been flagging the risk that higher commodity prices will spill over into the inflation data in the coming quarters, potentially leading to a resurgence in inflation (especially higher base metal prices).

While headline CPI came in line with estimates at 2.7% YoY, Core CPI came in slightly below (10 bps) estimates at 2.6% YoY.

The CPI charts:

• Unsurprisingly, the downward pressure on CPI is due to Shelter, which has been in a downtrend. Note that it’s a lagging measure, so we expect it to stop falling by Q2.

  

• Supercore CPI, or Core CPI Less Shelter, which JayPo post-COVID popularised, is proving stubborn (came in at 3.26% YoY). The latest reading was led higher by recreation services, driven by a surge in admissions prices.

  

• When we dig deeper, a few of the items, such as Used Cars and Trucks and Education and Communication, reported deflation and have been under pressure. Furthermore, the items that faced tariff pressures (goods such as apparel) are also showing signs of moderation.

One of the charts we want to share, and we believe was the reason behind Trump’s inaction on Iran:

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The US under Trump is doing “whatever it takes” to maintain the dollar’s hegemony by taking steps one wouldn’t have thought possible in their wildest dreams.

Furthermore, as the mid-term elections loom late this year, Trump has, in the last few days, made a series of decisions to support the struggling part of the economy.

Housing has been in a recession for the last 18 months, and the Trump administration has acknowledged this.

However, for the first time since Trump took office, we are witnessing the government’s urgency to revive the housing market.

Furthermore, the K-shaped recovery has left low-income households under severe stress.

As a result, Trump is now proposing to cap credit card APRs at 10%. Although this can’t be implemented via an executive decision, lowering APR by pressurising banks will eventually choke credit and have the opposite effect to what’s desired.

It’s too early to conclude, but the intent of the administration seems to be to revive the animal spirits in the US economy by propping up the cyclical part of the economy while at the same time augmenting its influence in resource-rich economies to secure natural resource/commodities supplies.

We are up 1.6% YTD as all our positions except a few have been firing up.

Let’s decipher the extensive macro data released this week and comprehend the cross-asset moves!

US/Equities/Bonds/Gold/Silver/Dollar/Oil!

We begin with our favourite indicator to gauge the cyclical activity in the US economy.

The ISM Manufacturing came in soft with the headline index reading at 47.9, marking the 10th consecutive month of contraction (below 50).

The sub-components demonstrate overall weakness.

Furthermore, the comments from the survey indicate the pain faced by businesses across the board:

• “Things are quieter regarding tariffs, but prices for all products remain higher. Our costs have increased, so we have increased prices for our customers to compensate. Margins have deteriorated, as full pass-through (of cost increases) is not possible.” [Computer & Electronic Products]

• “Things are not improving in the transportation equipment market. Many customers are ordering for 2026, but those orders are 20% to 30% below their historical buying patterns. Some large fleets are still completely on hold for 2026, with zero capital expenditures money available to fleet budgets. Truck rental utilisation, which is a good benchmark for the health of the economy, is still below historically stable levels. The general mood of the industry is that the first half of 2026 will be another bust, and we’re now hoping things pick up in the second half, even as the North American truck fleet continues to age.” [Transportation Equipment].

• “Orders continue to drop for most of our businesses. Many plants are not running near full capacity. Make to order being utilized where possible.” [Chemical Products]

• “Order levels have continued to decline: We had a bad October, an awful November and a dismal December. January and February don’t look too good, as bookings are down 25% compared to the first two months of 2025.” [Fabricated Metal Products]

Note that we prefer ISM Data as it is one of the leading indicators of the cyclical economy.

If there is a bounce and revival in activity, we will first see it in the ISM data.

ISM New Orders Less Inventories leads the headline number.

It has been trendless in the past few months.

However, with inventories contracting at a faster pace, any demand boost can lead to higher new orders.

Thus, we will maintain a close vigil on the data in the coming months.

While the ISM Manufacturing was dismal, ISM Services surprised on the upside.

The enormous rise in New Orders surprised the street.

If the uptrend remains intact, expect consumption to witness a V-shaped recovery, which could bode well for earnings as well.

One of the data points we present monthly and track very closely is the ISM Services PMI Prices, as it has a tight correlation with the US CPI.

The trend here is down, and the Services Prices Paid have likely peaked, which is good news for the Fed.

Nevertheless, the risk of higher commodity prices spilling over remains a headwind for lower inflation.

Let’s now jump to the labour market (10 charts):

• ISM Manufacturing and Services Employment Index: Services Employment rose sharply, indicating hiring in the services sector (however, as we will see later, it’s really shallow, limited to a few sectors). On the contrary, the Manufacturing Employment remains in a contraction zone and at the cycle lows.

  

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2025 in financial markets was marked by elevated cross-asset volatility as the world was stunned by a “Global Trade Reset”.

We successfully navigated the turbulent times by limiting the drawdown during the crash on Liberation Day.

Although we outperformed the benchmark (60% MSCI ACWI and 40% Bloomberg Global Aggregate) for most of the year, in the last month, we underperformed as we raised cash significantly and protected the gains made throughout the year.

We ended the year with 21% YTD returns (the best year since the launch of our Substack).

We accurately predicted the cross-asset moves.

We had 34 winning trades and 16 losing trades.

Overall, a win rate of 68% with an average gain of 7.3% and an average loss of 4.66%.

Note that we have four open trades.

Furthermore, except for this trade book, we also booked profits in the thematic investing bets in our equity portfolio (stock names hidden).

Across these trades, the average gain was 60%.

We could have maximised the gains and ended the year up by more than 30% if we had held to our positions a little longer.

Nevertheless, with our proprietary momentum strategy ready to be deployed in 2026, we will likely address this weakness and further enhance our returns.

Winners!

Some of our best calls this year have been:

1. In Q1, we got the long-bond call right and made a massive gain by taking the bet through a leveraged ETF. We also traded long bonds multiple times with a hit rate of 80%+ (only one losing trade out of 7).

2. We were in cash (around 30%) during the liberation day crash and went all in in the first week of April. As a result, we nailed the bottom in global equities.

3. We predicted the massive breakout in Japanese stocks and took long positions thrice via DXJ in April, June and August. Glad we were able to capture 80% of the upmove in NIKKEI.

4. Out of the 90% gains in the South Korean ETF EWY this year, we were able to capture a quarter of the move. We exited early and could have maximised the gains here.

5. We caught the Gold breakout in August and captured the move to $3800. Furthermore, we also took long Silver positions multiple times last year.

6. We also took positions in Gold and Silver miners multiple times and exited each time with gains. We had been bullish on miners and PMs for most of the year.

7. We also got in early in URA (Uranium) as we have been big believers in the nuclear renaissance.

8. We called the top in USDJPY twice and made money by shorting the FX pair throughout the year.

9. We successfully traded the enormous Ethereum breakout in August and also traded BTC profitably by shorting it around $108k (called the top in BTC around $121k in October).

10. Despite a bear market in Oil, we had success with long positions, catching the bottom in May.

Open Positions/ Current Asset Allocation!

Equities!

PS: Note that paid subscribers can access the detailed portfolio via the spreadsheet (link in the end).

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Before we begin, in Global Outlook 2025, we predicted the following:

• The S&P 500 will touch 200 DEMA in 45 days (it broke 200 DEMA on 6th March)

• S&P 500 at 6700 or 5400 (both scenarios were considered, and both targets were met).

• We expected European Equities to outperform the S&P 500 massively.

• We had a long call on Brazil (one of the best-performing equity markets globally).

• We envisioned a scenario where DXY touches 110-112 before Trump’s inauguration and then breaks 100 eventually.

• We expected USDJPY to touch 137 (it bottomed around 140).

• We expected Gold to cross $ 3,000 and Silver to cross $35.

• We gave a sell call on BTC with a target of $80k (low was $76k on liberation day and $80k last month).

Note that we have removed the paywall for Global Outlook 2025, so everyone can take a look!

Undoubtedly, the highlight of 2025 was the global trade reset as the US imposed draconian tariffs in April, only to reverse the decision and execute trade deals/extend the truce with major trading partners.

Nevertheless, the risks have been lurking across the board as we end 2026:

Today, we will present a comprehensive overview of the current macro situation.

We will also discuss our top macro trades for 2025, examine the appeal of equities, bonds, and commodities, and comprehend the influential FX markets.

We had a satisfying year, limiting our drawdowns, and we are ending with 21% returns YTD, slightly underperforming the benchmark over the past few weeks after outperforming it for most of the year.

Before we begin, for those who are really interested in venturing deep into the macro universe, can access Macro Micro’s (MM) Prime subscription at mouth-watering prices (original price: $250 annually, available at $10/ month)

The subscriber will receive:

• Full access to MM’s global macroeconomic charts and indicators

• Country dashboards and data insights.

• Weekly macro updates.

• Priority access to selected research content.

• Access to the 2026 Global Macro Outlook Series.

Note that they have designed the special offer for only the subscribers of Marquee Finance by Sagar (not to be shared publicly).

One can access it by clicking on the following link:

https://en.macromicro.me/promos/369/mrsagar?c=SAGARR

PS: Today’s newsletter is the most detailed we have written since the beginning the publication nearly 4 years ago. We have more than 60+ fundamental and technical charts that support our macro view and help predict the likely cross-asset performance in 2026.

The “Global” Macro View!

US!

Since the 2025 story was all about tariffs, we began by examining what transpired in that story.

Since early 2025, newly imposed tariffs fall into two categories:

• Section 232 Tariffs: Targeted at specific industries such as automobiles, steel, aluminium, copper, and lumber — imposed under Section 232 of the 1962 Trade Expansion Act.

• IEEPA Tariffs: Targeted at specific economies — including “fentanyl tariffs” on China, Canada, and Mexico, and the global reciprocal tariffs — imposed under the 1977 International Emergency Economic Powers Act (IEEPA).

The IEEPA tariffs will likely be deemed unlawful by the Supreme Court. However, the Trump administration has a backup plan and will likely invoke other bases—such as Section 122 of the Trade Act of 1974 or Section 338 of the Tariff Act of 1930.

Thus, we believe the tariff story is over, and we won’t see further cross-asset volatility driven by tariffs.

Furthermore, core sectors with high foreign dependence face low tariff rates.

In fact, under the USMCA, about 80% of goods from Canada and Mexico receive duty-free treatment.

As a result of the phased implementation and companies shifting import sources based on tariff levels, the actual tariff revenue reflects a rate rise to only about 11%.

Thus, a tariff-engineered recession was avoided, and a “trade war” has now turned into an AI war.

When we discuss the macro, we can’t ignore who absorbed the billions of dollars of tariffs.

According to the data, more than 66% of the tariffs were borne by firms, and the rest by consumers, resulting in lower inflation than market participants expected, given that the tariff rates were expected to be as high as 20%.

As promised during his election campaigns, immigration policy has been totally revamped under the Trump administration.

There have been multiple drastic consequences:

• NFP break-even has fallen from 150k to 30- 40k due to a fall in the Labour Force Participation Rate (LFPR).

• As illegal immigrants have been deported, the shelter inflation has been in a free fall, which has been putting downward pressure on the CPI.

• The soft surveys indicate that although the labour market has cooled considerably, labour quality has declined.

Thus, the immigration policy will have a far-reaching impact even in 2026.

We expect the fall in rents to continue, which will put downward pressure on Shelter inflation, negating the effects of tariffs-induced inflation primarily in goods prices in H1.

Furthermore, according to estimates, the core PCE will decline sharply in H2 due to base effects.

On the contrary, higher commodity prices are the most significant risk to inflation forecasts, as we believe that a commodity bull run, especially in base metals, driven by supply disruptions, a lower dollar, low inventory, and Trump tariffs, can lead to significantly higher prices, especially in H1.

Note that higher commodity prices will be seen in CPI with a lag of at least 3-4 months.

On the labour market, the softeness continues albeit gradually as the Unemployment Rate (UR) hits cycle highs. We expect Sahm’s Rule to be triggered sometime in Q1, which will lead to “recession” concerns.

Furthermore, higher UR will be accompanied by moderation in wages as measured by the ECI.

Nonetheless, we reiterate what we did 12 months back.

Due to extreme deleveraging in the private sector and the Households (HHs), we don’t foresee a recession similar to the 2008 GFC.

In the last decade, the leverage has shifted from the private sector and HHs to the government sector, a trend which has accelerated post-COVID.

We discuss more about the path that we believe the Trump administration will follow/ is following, to avoid a potential recession, and discuss the beneficiaries of the policy in the equities section.

Before we end the US section and move to Europe, for all those who are ardent supporters of “dedollarization”, we believe that the Dollar’s hegemony is here to stay for decades.

The Genius Act was a step toward further cementing the Dollar’s role in the global payments system.

We are of the view that it serves a dual purpose:

• It will be a tailwind for the US Treasury to raise the trillions of dollars it needs annually.

• It will maintain the dollar's hegemony for a long time.

Nevertheless, the combined market cap of the stablecoins is around $250 billion, and we need wider adoption before it becomes a sizeable force in global finance, competing with money market funds and banks.

Europe!

Outside the US, the story is the same everywhere as governments globally resort to fiscal expansion to spur growth.

While NATO allies agreed to target defence spending of 5% of GDP by 2035, Germany suspended its “debt brake” to raise defence and infrastructure spending.

Looser fiscal rules are boosting energy investment, predominantly nuclear and gas-based projects.

We discuss later in the equities section the implications of the elevated fiscal spending by the European nations, excluding the UK.

2025 marked the end of the easing cycle for the ECB, with markets pricing in a hike as the next policy decision in 2027.

In the UK, we expect the BOE to cut more than the market expects, as the UK’s macro is the worst among developed economies.

The labour market is deteriorating rapidly, and the CPI is missing analyst expectations as the economy slows amid fiscal tightening by the UK’s government.

China & Japan!

The stimulus measures taken in 2025 by the PBOC and the Chinese government have failed to revive animal spirits, as consumer sentiment remains depressed.

5th Five-Year Plan, revealed a shift in its 2025 policy logic—from heavy regulation to confidence stabilisation, fiscal stabilisation, tech development, and structural adjustment:

• Technology & Industrial Strategy: A push to seize technological high ground and transform China from a follower to a leader, with a special emphasis on AI and computing power.

• Economic Restructuring: For the first time, explicitly calling for raising the household consumption ratio while continuing the fight against inflation.

Note that the shift is a targeted measure, as China’s property sector remains in a deep “depression” amid a balance-sheet recession gripping the whole economy.

China's shift to high-tech manufacturing and Software services, with strides in AI and robotics, is visible in the macro data.

Furthermore, the policy of allocating consumption-tax revenue to local governments is a move that, if implemented, could motivate localities to prioritise consumption-stimulating policies over pure production/investment stimulus.

This will increase the share of consumption in the overall GDP, a long-standing Goal of Xi.

Note that Bessent has been very vocal about this fact as well.

In the land of the rising sun, despite record-high yields, the Japanese government is pushing for a record-high budget.

The budget for the year beginning April 2026 will total about ¥122.3 trillion ($786 billion), Takaichi said on Thursday.

That represents an increase of roughly 6.3% from the ¥115.2 trillion allocated for the current fiscal year, marking the largest initial budget on record.

Thus, we expect that a tight monetary policy will be needed to negate the loose fiscal policy, which might lead to higher CPI despite the base effect.

Also, we will watch out for Shunto wage talks in April. Higher-than-expected wage hikes will seal another rate hike by the BOJ.

Equities!

US!

For US equities, the most important chart for 2026 will be the:

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While we will discuss the decision in detail later, the rationale behind it was the persistent inflationary pressures Japan has witnessed over the last two years, driven by imported inflation due to the free fall in JPY.

As a result, Japanese core inflation (we use Core-Core here to exclude food) is now above US inflation for the first time since 1979.

PS: Note that the previous two instances, 1997/2014, were due to the sales tax hike.

On the contrary, we witnessed a neutral hold by the ECB and a hawkish cut by the BOE in the central bank universe.

We planned the Global Outlook 2026 this week, but considering the enormous macro data dump and the central bank action, we delayed it to next Saturday.

The paradigm shift that we are witnessing in the global economy will have drastic consequences as we head into 2026.

We will dig deeper into the macro setup next week.

Since we raised cash in late November, we explicitly mentioned that we want to protect profits and end the year above 20%+ even if it means underperforming the benchmark in the near term.

We are on track to achieve what we desired as we are up 20.2% YTD!

Let’s dig deeper into the macro universe and examine the cross-asset moves.

US/ Equities/ Bonds/Silver/Gold/Oil/Dollar!

Last week, JayPo mentioned that, due to the government shutdown (data collection challenges), he will be sceptical of government data.

The CPI data was released this week, and there was considerable uproar on social media about how rents/OER were computed.

The news became a wildfire post the Fed’s mouthpiece, Nick Timiraos’ tweet.

Nonetheless, the trajectory of Shelter inflation is significantly lower than current levels, and disinflation will continue for at least 9-12 months.

Note that we have been indicating since the past few months that the disinflation in the shelter inflation will put downward pressure on inflation and will potentially curb the goods inflation due to tariffs.

Trump appointee Miran has been advocating for more rate cuts than other Fed members, citing shelter disinflation.

Nevertheless, the headline CPI came in at 2.7% vs. expectations of 3.1%, and the Core CPI came in at 2.6% vs. expectations of 3%.

Note that energy contributed to disinflation but has flipped to positive territory thanks to the base effect.

When we look at the three components of the Core CPI: Core Goods, Shelter, Supercore (Services Less Shelter), we can examine that Shelter has been in a strong downtrend, whereas the Supercore has been sticky (was 2.7% YoY).

The Goods Inflation has been on the rise (but stable) due to the tariffs-induced inflation.

Retail sales slightly missed expectations with a print of 3.5% YoY /. 0% MoM v/s expected +0.1% MoM.

However, as usual, the devil lies in the details.

The Retail Sales Control Group (which excludes food services, auto dealers, building materials stores and gasoline stations) surged 0.8% MoM - double expectations and the biggest MoM jump since June.

It was led by online sales/non-store retailers as consumers went all in on discounted products, further strengthening our thesis of a K-shaped economy.

Nevertheless, building materials continue to decline, and furniture saw muted growth as the housing recession takes a toll on housing-related sales.

Let’s move on to the labour markets, where we present the most comprehensive chart pack with seven charts analysing the NFP:

• The biggest job destroyer was the government sector. Note that these are not temporary furloughs but are permanent job losses since these federal employees filed for retirement early in January but remained officially employed until September. The majority of the job gains were once again in the non-cyclical sectors of Education & Health Service. The cyclical sectors (ex- Construction) witnessed further job losses in November, led by Transportation and Warehousing.

  

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Since there are multiple forces at play in the global financial markets, you can’t be 100% certain about the cross-asset moves.

Therefore, you have to position yourself by joining the dots and factoring in the most probable outcome.

According to us, 2026 will be the defining moment for the AI theme that the market has been riding for the past three years.

In the macro universe, the Fed’s independence will be scrutinised closely as there have been calls by the current administration to revamp the way the most powerful central bank operates.

Internally, despite no changes yet implemented, the Fed is becoming more divided by the day, as the dual mandate becomes more challenging given the new paradigm we entered post-COVID (structurally higher rates, deteriorating demographics, and higher neutral rates).

We witnessed the level of division during the recently concluded FOMC, where seven officials disagreed with the decision amid extreme “political pressure” to cut rates.

Today, we will discuss in detail the Fed policy, the cross-asset moves, the upcoming crucial week as we get delayed government data in the US and the BOJ, which will hike for the second time, a historic move.

Before we begin, we want to announce that we are now developing proprietary momentum strategies.

This is just an example of a long-only momentum strategy on the S&P 500 (still under development).

We are currently backtesting them, and we believe 2026 will be a blockbuster year for us, especially after generating 20%+ returns this year.

We will extensively incorporate macro and use our trading strategies to enter and exit at the right time to maximise the profitability.

US/Equities/Bonds/Gold/Silver/Oil/BTC/!

The FOMC was on top of everybody’s radar this week as the markets were expecting a “hawkish” cut, a term that we have been hearing off late for the first time in history.

Some market participants are perplexed by the word “hawkish” attached to a “cut”.

Nevertheless, the FOMC statement compared to the last FOMC is as follows:

Interestingly, we got a new member to the “Hawks” camp.

Goolsbee was the surprise entrant. Notably, Schmid has been a known hawk.

A divided Fed is now becoming the base case, which will lead to fireworks in cross-asset markets in 2026 as volatility further rises.

If others (Ex- Waller and Bowman) enter the hawkish camp, it will be challenging for the new Fed Chair (whoever he/she may be) to forge consensus among the members.

Nonetheless, if labour market data deteriorate as we expect, the rate-cut trajectory will be smoother than most people expect. The consensus-building for the new Fed Chair will become easier than one can foresee today.

Our base-case scenario involves more than two cuts next year (more than the market expects).

The one revelation this year has been how irrelevant SEP (Summary Of Economic Projections)/Dot plots have become.

In light of a divided Fed, the dot plots are all over the place.

The implied FFR for 2026 as per the dot plots:

• 3 dots for one hike.

• 4 dots for status quo (unchanged).

• 4 dots for one cut.

• 4 dots for two cuts.

• 2 dots for three cuts.

• 1 dot for four cuts.

• 1 dot for six cuts (Miran, of course).

Nothing can be inferred from the SEP or dot plots, especially considering we will get a new Fed Chair in May and JayPo has only two meetings (max two cuts he can deliver).

The SEP projects a complete “Goldilocks” scenario, with GDP revised higher to 2.3% for 2026, PCE/core PCE revised lower to 2.4% for 2026, unemployment unchanged, and revised lower to 4.2% for 2027.

We can’t infer anything from the SEP, and it’s best to ignore it for our analysis.

Coming to JayPo’s speech, Bloomberg’s natural-language processing model for Fed sentiment showed that Powell’s opening remarks were more dovish than the October meeting and the most dovish since 2021, according to BI’s Jersey. The comments around the asset purchases were a significant driver of this move.

The liquidity injection was indeed expected, but the tenor of the bond purchases was the surprise factor, turning the policy dovish.

The Fed buying bills is similar to what Yellen did as Treasury Secretary during the last year of Biden’s presidency.

In fact, the Fed’s close integration with the US Treasury will be a key macro outlier for 2026.

Let’s now analyse the world’s most powerful banker’s statements:

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As happens with every boom-and-bust cycle, the competition heats up, and eventually those with the competitive advantage emerge victorious.

The Chinese are rapidly enhancing their capabilities and catching up to their US peers.

Considering the concentrated global stock markets and the likely repercussions of global AI adoption, it’s paramount for every investor on the planet to track the AI race.

Various studies portray that AI will lead to productivity gains. According to Goldman Sachs, academic studies and company anecdotes suggest that AI Adoption Boosts labour productivity by around 27-33% on average.

As we head into a post-AI era, the boom-and-bust cycle will open up opportunities in both the equity markets and the macro universe.

We have begun researching and writing the Global Outlook 2026, which will be out on 20th December.

The annual performance review will be published on 27th December.

As mentioned last week, we are happy to underperform for a few weeks while protecting the gains achieved this year.

We are up 20.6% and will likely end 2025 above 20%.

Let’s begin today’s newsletter and analyse the cross-asset price action.

US/Bonds/Equities/Gold/Silver/Oil/Dollar!

The delayed government data for September is slowly trickling in.

The most important hard data for the week were the PCE, the Fed's favourite inflation gauge.

Today, we will analyse the PCE by dissecting it into two components:

• Cyclical components are PCE items whose prices are more sensitive to overall economic conditions, such as housing, recreation services, and food services. Cyclical components account for about 40% of PCE in the US.

• Acyclical components, on the other hand, account for around 60% of PCE and are more sensitive to industry-specific factors. These components include healthcare, financial services, clothing, etc.

We can observe that the Acyclical Core PCE, though above the 2012-2020 range, has stabilised, but it is turning out to be sticky.

Cyclical Core PCE plunged from its highs as rent costs (housing inflation) fell significantly. It’s now near pre-COVID levels, and with the administration’s immigration policy, we expect the housing inflation to remain subdued going forward as well.

The Supercore PCE (Services Ex-Housing) has cooled down with a MoM rise of 0.221%.

The slightly cooler PCE data should give the Fed confidence, and as a result, there is now a 90% probability that the Fed will cut rates by 25 bps on Wednesday.

ISM Manufacturing has been our favourite indicator for gauging cyclical activity in the US economy.

The headline ISM Manufacturing came in lower than expected.

The culprit was the Employment PMI, which is again below 45 levels.

When we analyse the comments from the Survey, the tariffs are hurting the manufacturing sector, and one respondent referred to uncertainty similar to that of the COVID era.

Some of the comments from the ISM Manufacturing Survey:

• “We are starting to institute more permanent changes due to the tariff environment. This includes reduction of staff, new guidance to shareholders, and development of additional offshore manufacturing that would have otherwise been for U.S. export.” (Transportation Equipment)

• “Tariffs and economic uncertainty continue to weigh on demand for adhesives and sealants, which are primarily used in building construction.” (Chemical Products)

• “Business continues to be a struggle regarding long-term sourcing decisions based on tariffs and landing costs. External (or international) sourcing remains the lowest-cost solution compared to U.S. production/manufacturing. The delta is smaller now, reducing margins.” (Computer & Electronic Products)

• Trade confusion. At any given point, trade with our international partners is clouded and difficult. Suppliers are finding more and more errors when attempting to export to the U.S., before I even have the opportunity to import. Freight organisations are also having difficulties overseas, contending with changing regulations and uncertainty. Conditions are more trying than during the coronavirus pandemic in terms of supply chain uncertainty.” (Electrical Equipment, Appliances & Components)

New Orders Less Inventories fell sharply, reversing the trend and indicating that the ISM Manufacturing PMI might follow suit.

As we have always maintained that one can’t infer from a single month of data, but if the trend persists, then it will indicate that the manufacturing recession will deepen further (EX- the AI capex-related industries).

The headline ISM Services came in better than expectations at 52.6.

One of the comments in the ISM Services survey that caught our eye:

“Suppliers are very inconsistent on how they are planning and executing pricing related to tariffs. Overall uncertainty on how to source and how much to source is as high as during the coronavirus pandemic era.” [Accommodation & Food Services]

The tariff and the government lockdown have hurt the economy, and it will be visible in the data when we get the releases after 15th December.

While the ISM Manufacturing Prices Paid is elevated at 58.5, we have seen some cooling in the ISM Services Prices Paid, which is now 65.4 from 70.

Our favourite chart from the ISM Services is ISM Services Prices Paid, as it is closely correlated with the US CPI.

From the chart, we can conclude that the CPI might rise in Q1 as old inventories are replenished, but if the ISM Services is to be believed (and if the downward trend continues), the spike will be temporary (transitory).

Now let’s jump to the most critical piece of the puzzle:

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