Episode 023: Noise awaiting signal - Thematic Edge Podcast | Lyssna här

Introduction

In this episode of Thematic Edge, Marvin Barth and Mark Farrington revisit the “resolution window” stretching from the summer through the US midterm elections examine what market signals we’ve gleaned so far.

They assess the latest inflation data and central bank decisions, the changing shape of the US Treasury curve, Scott Bessent’s management of the bond market and the strength of corporate earnings. They also examine the growing anxiety surrounding AI, from regulation to US-China competition to the rapidly expansion of financing needs for the investment boom.

They note that many of the outcomes feared have so far failed to materialise. Earnings remain strong, Treasury markets have stabilised and capital investment is broader than the “only-AI” narrative suggests. Yet uncertainty remains as the US midterm elections approach and political narratives are approaching a crescendo.

The challenge for investors is separating noise from signal.

Key themes

• The resolution windowMarvin and Mark assess the major events that have passed since their last discussion and whether the balance of evidence is beginning to shift.

• Inflation remains stickyThe latest CPI reading was widely characterised as “hot”, but both question that interpretation but agree that inflation expectations remain sufficiently elevated to require further tightening.

• Central banks still have work to doThe Fed, Bank of Japan and ECB are all signalling that they may finally understand that their inflation problems have not disappeared, even if their approaches and communication differ.

• Bessent and the Treasury curveThe discussion examines how Treasury Secretary Bessent’s buybacks and clear communications have helped improve liquidity and anchor the long end of the US yield curve, drawing institutional investors back to the market.

• US China relationsAhead of further talks between Washington and Beijing, Marvin and Mark consider where cooperation remains possible amid continued strategic competition, particularly around trade, technology and managing the dangers of AI.

• The AI financing boomAI borrowing has increased dramatically, creating genuine competition for capital. But set against sovereign borrowing and pre-financing being assembled by institutional investors to extend the boom, the picture is more positive than many narratives imply.

• The investment boom is broader than AICapital expenditure, manufacturing investment and earnings strength extend well beyond hyperscalers and the Magnificent Seven. The US investment story began before generative AI and remains much broader.

• Earnings versus the wall of worryCorporate earnings continue to surprise positively. Marvin and Mark discuss why strong fundamentals can coexist with persistent bearish narratives and how investors should interpret that divergence.

• Noise, politics and resolution eventsAs the US midterms approach, political narratives are likely to become increasingly prominent. The discussion focuses on how investors can distinguish those narratives from underlying economic and market signals.

Timestamps

00:00 The resolution window revisited03:25 Inflation, the Fed and the global central bank cycle16:06 Treasury fair value, term premia and Scott Bessent23:05 US Japan and US China relations29:26 Earnings continue to surprise33:20 AI risk, regulation and strategic competition39:19 AI financing and competition for capital46:19 Why the investment boom is broader than AI52:04 Trading the wall of worry59:01 Global bifurcation and what comes next