Global Bond Selloff, AI, and US Economic Outlook with Evercore ISI, BlackRock, and Citi

Global Bond Market Dynamics

• ⚠️ A global bond selloff is underway, driven by anxiety over inflation and mounting government debt, leading to upward pressure on yields.
• 📈 Long-dated bond yields, particularly 30-year Treasuries, are repricing higher due to a steeper fiscal trajectory and persistent inflationary pressures.
• 📉 The front end of the curve has priced in more rate cuts, supporting a steepening view, but significant steepening has already occurred, lowering the conviction for this view.

Equity Market and AI's Influence

• 🚀 The current bull market is characterized as AI-driven, with big tech expected to continue leading through 2026.
• 💡 Investors are advised to think long-term and not fear bull market drawdowns, as elements that typically end bull markets are not present.
• 💰 For those seeking hedging, a tilt towards low valuation stocks and defensive assets is suggested to enable buying dips.
• 📊 Correlations among stocks are at some of the lowest levels in a generation, offering opportunities to isolate winners and losers despite the influx of money into ETFs.

Economic Outlook and Fiscal Policy

• 🌱 The US economy is seen as troughing in growth in the fourth quarter, with gradually higher growth expected thereafter.
• 📉 Inflation is anticipated to peak in the fourth quarter and gently fall over 2026.
• ⚠️ The possibility of a government shutdown at the end of September is considered a significant risk due to friction between Republicans and Democrats, potentially leading to at least a temporary shutdown.
• 🏛️ A "pocket rescission" by the White House to cut spending Congress has approved is seen as exacerbating tensions on Capitol Hill.

International Markets and Geopolitics

• 🌏 International markets have come under pressure due to tariff read-throughs, with outperformance of international markets (especially Europe and parts of emerging markets) relative to the US largely attributed to a weaker dollar.
• 🇨🇳 China's net export engine has been stronger than expected, and the tariff differential narrower, complicating a rebalancing of supply chains to other parts of Asia.
• 🌍 A global tug-of-war is occurring over economic power, with a shift towards multipolarity and questions about whether this adjustment will be orderly.
• 🇺🇸 The populist movement in the US is noted as a significant factor, with its long-term impact on global economics still unfolding.

Emerging Markets and Central Bank Policy

• 💡 Emerging market countries have shown discipline in keeping their fiscal houses in order due to past crises, leading to divergence with developed economies.
• 🏦 Asia is experiencing a slowdown, with risks in the second half due to the reversal of export payback effects and uncertainty impacting capex.
• 💲 Central banks in Asia have room to be dovish and benign due to benign core inflationary pressures and a slowing economy.
• 🇨🇳 China is expected to be careful and maintain economic leverage, particularly with critical minerals, while diversifying its economic relationships.