Early Morning Reid: Macro Strategy

Research evidence excerpt

Early Morning Reid: Macro Strategy

evels. You can see more details of the move in the review

of last week towards the end. One thing to be aware of for risk assets is the

relatively subdued reaction so far in the MOVE (bond volatility) index. This is the

bond variable that most closely correlates with risk assets. It is currently around

80 and spent most of the period between early 2022 and early 2024 in a range of

100 to 150, so it remains relatively low so far which limits the impact of the rate

shock.

Regardless, the bond move will no doubt be a major topic at the two-day G7

finance ministers’ meeting starting today in Paris. The meeting was billed as an

opportunity to discuss global imbalances, such as the US budget deficit, China’s

huge trade surplus, and Europe’s lack of investment. That might get a little

overtaken by events.

This meeting follows on from last week’s Xi–Trump meeting in Beijing, which can

best be characterised after the event, as a “summit lite”. It produced few concrete

economic or geopolitical outcomes, with both sides emphasising stability and

continued dialogue rather than agreements. Despite market hopes, China offered

no assistance in reopening the Strait of Hormuz, and the US position remained

unchanged on Taiwan, semiconductor controls, rare earths and AI cooperation.

For markets, the key takeaway was what did not happen: there was no escalation,

but also no progress on the issues that matter most to investors.

Another hot topic right now is the UK, where there’s been a lot of political turmoil

in the last week. That helped push the 30yr gilt up +21.3bps, which was a clear

underperformance, whilst the pound sterling had its worst week against the US

dollar since 2024. That came as a route opened for Greater Manchester mayor