Disinflation ahead?

Here are the results from the poll on Tuesday:

This data can be interpreted in different ways and I’m curious about what readers think. My interpretation is that even though there’s a healthy cohort of people who are long, there’s enough buying power on dips to keep the bull market going. I’ll run the poll again in a month to see how the results change.

Big news came out of Iran as the White House is talking to Iran again about an end to the war. Front Brent is down to 102 after trading as high as 115 earlier this week. Is it possible that the Economist cover indicator has successfully timed the market again?

We’ll see if anything real comes out of this, but markets are reacting like the war is already over. If peace talks continue going in a positive direction, we may see a powerful disinflationary impulse take over the market, with USD and yields reversing their gains and equities receiving an even greater tailwind.

“Why do you see disinflation when inflation is still running above the Fed’s target?” asked a reader in the Substack chat. What determines the macro regime is not the absolute level, but the direction of travel. Disinflation is driven by declining inflation expectations and stable or rising growth. If central banks have to worry less about hiking and emerging economies are less crippled by energy supply shocks, that is disinflationary. If the Strait of Hormuz opens back up, the energy shock will be alleviated and offset by declining effective tariff rates, housing disinflation, and easing base effects from last year’s tariff shock.

My book is 100% positioned for this macro regime, having established some short USD trades earlier this week. In the paid subscriber section, I’ll discuss my current positions and a new addition to the AI portfolio.