Hello everyone, and welcome to our weekly ‘5 Things We Watch’, where we boil down 5 of the things we keep an eye out for, in a short and concise format. Enjoy!

This week we are watching out for the following 5 topics within global macro: 

1. Further tailwinds for risk assets?
2. A hot CPI report in the cards next week
3. More liquidity for markets ahead
4. UK Assets are looking increasingly interesting
5. Overall dollar weakness, but not against Asian FX?

1) Further tailwinds for risk assets?

Equity sentiment has normalized further despite the rather dovish tones coming from Powell last Wednesday, although the rhetoric sounded more indecisive rather than the opposite, meaning that a pause is still not out of scope if the Fed can’t regain control of financial conditions and inflation – and tendencies are pointing in that direction with rent inflation seemingly back again to haunt markets.

Active managers’ exposure in equities, released through the NAAIM figure has dropped back to around 60, and while it’s still bullish compared to historical standards, it’s much more benign compared to levels seen in Dec 23’ and March/April 24’.

The normalization of stretched positioning comes at the perfect timing for equity bulls, as the announcement of QT to shrink has just been delivered to markets. We’re going to go from a VERY bad April in liquidity terms to a GREAT Q3, potentially setting the scene for a continued equity bull-run that could run towards Q3/Q4.

Chart 1: Equity sentiment normalizing, which is actually good for risk assets