Welcome to the weekly Positioning Watch, where we assess the past week’s performance of our portfolio.

We have generally navigated a tricky week well, thanks to material gains from our metals shorts. However, we are admittedly a bit surprised by the lack of response in the rates space to what appears to be a still-resilient US economy. We are still up 20% since our launch in May 2023, in a portfolio that is essentially uncorrelated with the S&P 500, which is something we are proud of.

Fair enough, the Q2 GDP report and the upward surprises/revisions to PCE numbers are somewhat old news, but they still defy the gravitational pull towards 2% inflation and sub-trend growth that markets have been chasing for a couple of years in the rates space.

We are now back to trading below the front-end rates levels seen before the smoking-hot US GDP report. Does that make sense, or are markets starting to lose their composure ahead of the July FOMC meeting?

Markets are pricing in -26 bps for the September meeting, which is the first sign that we are likely to discuss a 50 bps cut in September at the first sign of weakness in the US economy going forward.

Chart 1: 2yr rates below levels seen ahead of the GDP report