Balham is the epitome of gentrification in South London. It has a Tube station, plenty of pleasant greenery, lovely terraced housing and, of course, a plethora of coffee shops, bars, restaurants and bakeries. There is a Gail’s, obviously, though Hildreth Street is arguably ground zero for hipster eateries and bars. Every weekend, people queue for brunch and flat whites in the morning, returning in the evening for a table in one of the same street’s bars and restaurants.
Read MoreSeptember delivered a unusually severe test of the market’s internal structure. The ten-year US Treasury yield rose by 53 basis points, its largest monthly increase since September 2022; the Federal Reserve tightened for the first time since 2023; Brent gained almost 14%; and both the S&P 500 and European equities fell. Yet global equity indices ended the quarter only around 2% below record highs and remained more than 12% higher year-to-date.
The chartbooks largely confirm this resilience, but with an important qualification. The equity regime has not broken; rather, leadership has rotated towards assets capable of tolerating higher nominal growth, higher inflation and scarcer energy. Technology remains a structural leader, but energy, healthcare, materials and selected non-US markets are increasingly important. The weakest signals are concentrated in the rate-sensitive domestic sectors and in countries exposed to deteriorating terms of trade.
Read MoreAnalysts and economist are, broadly speaking, offering up four separate reasons for the continued rise in developed market, and in particular, US bond yields. A resurgence in inflation due to the negative supply shock in global energy markets as a result of the US-Iran war, loose fiscal policy with little or no credible plan for any near-term consolidation, a reflection of improving underlying growth and rising productivity—linked to the AI investment boom—lifting the real neutral rate for “the right” reasons, and more specifically in the context of AI, rapidly accelerating AI debt issuance “crowding out” government debt issuance, lifting the cost of capital for the sovereign.
The idea that AI debt issuance is now a key driver of rising bond yields via a “crowding out” effect has captured a lot of attention in recent weeks with key Wall Street analysts and publications offering evidence to support the claim. The FT’s Toby Nangle, however, is not so sure, and in a recent FT Alphaville piece he sets out to rebut the claim.
Read MoreOne of the more useful AI tools that I have set up recently is a bi-weekly macro and demographics theme scout, which collects material on a given topic and runs through a number of recent and older sources, and synthesises this material into a brief essay, as well as a text to speech (TTS) document so that I listen back with the ElevenLabs text-to-speech app.
I thought it might be useful to recycle some of this material on the blog. One of the topics my AI scout landed on earlier this year was fiscal dominance, and whether developed markets are now slipping into this regime after a long period in which monetary dominance—activist monetary and passive fiscal policy—was the norm. I would frame the question like this. Has fiscal largesse during Covid, the subsequent fiscal support to protect against sequential global supply shocks in energy, and more generally deglobalisation and a focus the government balance sheet as a strategic lever for economic security pushed monetary policy into a Sargent and Wallace world of "unpleasant arithmetic”?
Here is the essay with some additions by me and more recent contributions.
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