Welcome to The Observatory. The Observatory is how we at Prometheus monitor the evolution of both the economy and financial markets in real-time. Here are the top developments that stand out to us:
i. Initial Jobless Claims came in better than expected. Unemployment remains broadly below trend. California showed the most significant increase in unemployment claims, while New York showed the most significant decrease. In addition to high nominal wages, sustained employment will pressure real growth and profitability.
ii. Markets have once again moved towards pricing elevated nominal growth. While tightening liquidity concerns remain constant in markets, market pricing has reflected rising nominal growth levels over the last month. Despite many analysts’ attempts to call the top in inflation and Commodities, the current regime has shown remarkable resilience. Therefore, we think it best that we let our signals lead the way:
iii. Commodity price pressures continue to support elevated inflation. However, these inflationary pressures remain sequestered primarily to energy prices and agricultural products, while metals and industrial inputs lag significantly. Our systems tell us that the commodities experiencing elevated price pressures are much more important to inflation than those currently lagging. Below we show the normalized change in the broad range of commodities we track, along with a diffusion index, which measures the pervasiveness of strength in the complex:
We continue to think that the current mix of fundamental data and market regime dynamics suggest we tilt towards inflation beneficiaries. This approach has served well thus far this year, with our ETF Strategy showing risk-adjusted solid returns relative to most markets. However, this week, our ETF Strategy has faced a more challenging environment, as Equities staged a bounce and the dollar sold off. Our broader Alpha Strategy has maintained positive performance this week. We show the composition of our ETF Strategy performance year-to-date below:
Finally, we show our position monitor for our Alpha Strategy across all asset classes, showing our current exposure 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!