Welcome to The Observatory. The Observatory is how we at Prometheus monitor the evolution of both the economy and financial markets in real-time.
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Here are the top developments that stand out to us:
i. Economic activity indicators showed further decelerations. US Markit PMI disappointed expectations and showed sequential declines. The US Markit Composite PMI came in at 53.8 versus the expected value of 55.7, a slowdown from the previous value of 56. The report detailed sustained price pressures across the manufacturing and services sectors, which tells us that these cost pressures will continue to eat away at the real output. Our High-Frequency indicators tell us there is more declaration to come:
ii. Employment data remains relatively resilient, holding up our GDP Nowcast. It is often touted that employment data is the last data to turn. According to our GDP Nowcast, this cycle is true to form; employment data remains resilient in terms of declines resulting in GDP growth between 1.1% to 1.4%, with economic data still mildly disappointing expectations. However, gains in employment data have consistently disappointed expectations. As price pressures build and real incomes deteriorate, we will see fading employment.
iii. Treasuries should have a minimal portfolio position. Many market participants are now calling for a bounce in Treasuries; however, price dislocation by itself is not a signal. Through our systematic lenses, inflation dynamics create a challenging environment for Treasuries; weak growth supports higher Treasuries, the trend is negative for Treasuries, and regime expected returns are one standard deviation above the cross-sectional average of 50 assets we track. These dynamics do not present a strong signal. We expect Treasuries to be a strong performer in a tightening liquidity environment. Still, for our systems to start piling in, we need to see significant changes in the market trend. We wait and watch. Here’s our net exposure monitor for Treasuries & MBS:
Finally, we show our position monitor across all asset classes, showing our current in each asset. Note that position may vary from our ETF strategy due to the larger universe of securities used and the more extended history of signals:
Here is how our systems are positioned at the asset class level:
Looking for how to deploy these strategies in an ETF format? Click here to check out our Week Ahead note, where we lay out our exposure by ETF for this week. Stay nimble!