A Lot of Talks but Volatilities Stay Low Despite Tensions
In this edition:
- Did Warsh change the game at Jackson Hole?
- Long rates are not the Fed's to set.
- The debasement story started a long time ago.
- Alliances in motion.
- Japan is ready for a hike.
Did Warsh change the game at Jackson Hole? Absolutely not. He restated his opposition to regular forward guidance, calling it a crisis-era tool that has "overstayed its welcome". He described a strong economy with AI at its center. He reaffirmed the Fed's commitment to the 2% target, also expressing his strong belief that the economy will return to that target. The probability of a rate hike grew a bit, to 50%. In other words, Mr. Warsh gave no guidance! He closed by saying he is "committed to a discipline, not to a decision". And for the anecdote, Mr. Warsh's 3,598-word speech mentioned "deficit" exactly zero times. Quite surprisingly, the vast majority of commentators completely ignored the weak demand-side July dataset and focused on the (undeniable) inflationary impact of data center investment. The bleak scenario for Mr. Warsh is that demand slows without generating the slack needed to break services inflation. The next set of data will really matter!!
The real rates story will be part of the next “The cycle, the yield curve and sectors rotation”.
The Fed is in charge of short-term rates, not long-term ones. The "panic" is rather in the headlines at this stage; the market did not break the 2026 highs, at least in the US. The Treasury is used to "playing around" with maturity issuance (graph below). The average maturity of issued debt has been stable between 70 and 72 months for years. The issue is not the structure, but the size of the deficit. Long-term rates are the prices that balance supply and demand for capital. And here Mr. Bessent and the various MoFs are in charge. The problem is that demand for savings has accelerated with the fiscal deficit combined with the financing needs of the AI complex. Current demographic trends reduce supply. Printing (too much) money reduces credibility and drives yields up. Mr. Bessent is trying to anchor those long-term rates. A strong depreciation in the USD would hurt foreign investors. Fiscal consolidation or delayed AI investment would slash growth — and the equity indexes. Tough choices!
Sources: LSEG, SARIM
Is the debasement trade back? Gold and Bitcoin bounced strongly after Mr. Bessent's remarks. On Friday, after Mr. Warsh's speech, gold lost more than 3% and so did BTC. To gauge the impact of the two events, SARIM also likes to look at the FX market. Interestingly, the DXY, which includes only DM currencies against the USD, returned to the levels prevailing before Bessent's remarks. Quite remarkably, EM currencies either barely moved — this is the case in Latam — or simply continued their idiosyncratic trend, as in most Asian countries. The yen? At the same level as on August 18th, before Bessent's warning that the Treasury could buy long-term bonds. In other words, much more headline panic so far than big changes in markets. The monetary debasement story started everywhere with the creation of central banks anyway. But sure, some gold belongs in a balanced portfolio — just do not forget that it pays no income.
Geopolitics, a few words. The team has been surprised by Trump's comments on Korea, publicly humiliating an ally. In the Middle East, Iran has forced the U.S. into what chess players call a "Zugzwang" position: whatever the move, it will worsen your position. Alliances are being reshaped inside the Middle East, with Turkey and Saudi Arabia apparently reinforcing ties. Turkey has already gained regional influence with the war in Ukraine and the overthrow of Bashar al-Assad. Elections in Israel are drawing closer. The ongoing trade war between the US and Canada is probably an opportunity for Europe and Asian economies to gain market share in North America, all the more so as the US now looks more and more to the South. So, the Brazilian elections gain in importance for the U.S. sphere of influence on its own continent.
Institutions and habits inherited from WWII are definitely obsolete; the world is becoming more chaotic and "transactional".
A reinforced geographical fragmentation with 3+1 macro regions with reinforced historical, trade, and investment ties.
The economics of wars means a focus on bottlenecks and the reinforcement of sovereign capacities.
Source: SARIM, adapted from January’s published map
The Japanese economy is definitely in strong shape. Industrial production defied expectations (again) in July, growing across the board. Inflation accelerated further in July, to 1.9%, despite government subsidies engineered to lower the data. The August figure for Tokyo alone points further north. In other words, the BoJ will almost certainly hike rates on September 18th, and the market prices it accordingly. The government and the central bank have both guided in that direction. A hike alone will not be enough to support the yen; a hawkish speech from Mr. Ueda will also be necessary. Australia, South Korea and Taiwan are the other booming economies in the region, as this morning's data remind us.
Sources: LSEG, SARIM
More Global Macro on: https://swingandrythm.substack.com/
... and Yieldstasher, SARIM's sister organization: https://yieldstasher.ai/
About SARIM (Swing & Rhythm Investment Managers):
Swing & Rhythm Investment Managers (operating as SARIM - Swing And Rhythm Investment Managers GmbH) is an independent Swiss-based asset management advisory firm headquartered in Zug, Switzerland. Founded in 2025, the firm is managed by Yann René Lepape and focuses on global macro cycle-based investment strategies.
About SGT Markets:
SGT has been helping clients and partners capitalise on multi-asset trading and investing opportunities for nearly 20 years. A history that has enabled us to achieve significant milestones on our journey from a small trading company to the international trading and investment group we are today.
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