Macro Views: Growth Holds, Pressure Builds

The global macro backdrop is an inflationary expansion rather than stagflation, but growth is increasingly narrow and inflation remains too broad for comfort.

• In the United States, AI investment, private demand, corporate profitability and a stable labor market support growth, while activity outside AI-linked manufacturing remains below capacity and consumer spending is constrained by stagnant real income and near-cycle-low saving.
• US inflation is structurally closer to 3%, with August CPI, shelter and transportation services accelerating; manufacturing and services ISM price indices were both above 70, while energy, tariffs, freight costs and AI bottlenecks threaten to delay disinflation.
• US nonfarm payrolls rose by 162,000 in August and June–July were revised up by 55,000; the authors expect unemployment at 4.0% or lower and see a second 25-basis-point Fed hike by year-end, with another possible in 2027.
• Euro-area Q2 GDP exceeded expectations, with the ex-Ireland economy expanding 0.3% quarter over quarter; German defense and infrastructure spending is lifting the deficit toward 3.5% of GDP, while weak retail sales and dissaving point to consumer fragility.
• Euro-area headline inflation is likely to rise above 3% because of fuel prices, but the authors see limited second-round effects; France faces a deficit near 5.5% of GDP and debt above 120% of GDP, increasing political and spread risks ahead of elections.
• Japan remains in a longer-term recovery despite weaker-than-expected Q2 GDP, while sticky inflation, a September 25-basis-point BoJ hike and multi-decade-high JGB yields raise further tightening, fiscal and global spillover risks.

Takeaway: Investors should expect rates to remain sensitive to inflation, fiscal deficits and central-bank credibility; long-end Treasury yields look more like normalization than crisis pricing, while European and Japanese bond risks depend heavily on energy, fiscal and political developments.