Happy Friday! 

Every week, we dive deep into macro trends, analyze asset movements, and uncover the best value plays in the world of macro. These insights are shared with hedge funds and institutional clients, and each Friday, we bring them directly to you.

While the macro landscape can be complex, we believe it doesn’t have to be intimidating. In this recurring series, we break down the key takeaways from the week, explain what we’ve told hedge funds, and outline how we’re trading these ideas — all in a straightforward and actionable way.

As always, let’s have a look at the current portfolio setup before we jump into the macro stories

Equity sentiment continues to sour as Trump’s relentless flip-flopping on tariffs drags on, with new on/off announcements coming almost daily. Once again, it took only a few hours after announcing an additional 25% tariff on steel and aluminum before it was pulled back. Meanwhile, counterparts are starting to respond—first Canada with retaliatory tariffs, and now Europe is considering hitting the U.S. with tariffs on goods.

Markets have desperately searched for Trump’s pain threshold in equities (and the economy), but with no meaningful comments beyond his usual medium-term rhetoric, it appears that threshold remains distant. More on the Trump administration’s endgame later in this article.

Our portfolio is currently feeling some pressure from bond yields’ reluctance to move lower, even after both weak CPI and PPI reports this week—an environment that should have been a home run for U.S. bond yields. However, markets have hesitated to trade bond yields further south due to:

1. The deficit not shrinking at the promised pace.
2. Increasing concerns over a potential U.S. government shutdown at some point during Trump’s presidency, which naturally lifts bond yields (due to default risk).

Our European equity bets continue to perform well, especially following today’s announcement that Germany’s debt package will likely pass, targeting fiscal spending in infrastructure, defense, and climate. Europe is set to outperform in the short term, particularly relative to the U.S.

As the saying goes, you should accumulate equities when there’s blood in the streets. Contrarian investors are likely picking up risk assets here, as sentiment has fallen to 2022 levels after the seventh-steepest correction in S&P 500 history. Are we adding more? Not yet, but we are looking to add risk next week.

Chart of the Week: The Bull-Bear Spread Is at Extremes