MacroVoices #431 Lakshman Achuthan: 2024 Turning Points

Episode Summary

Executive Summary: Macro Voices episode 431 centers on ECRI’s Lakshman Achuthan arguing that the global industrial cycle has turned up, especially via China and manufacturing, which should support growth but also reawaken goods inflation. The post-game covers market positioning in crude, equities, gold, copper, uranium, and Treasuries, with a common theme of tightening inflation risk amid still-strong risk assets.

Main Topics: Global industrial growth upturn (Priority: 5/5): Achuthan says ECRI’s leading indicators signaled a worldwide industrial production bottom and upturn in 2024, with implications for demand, trade, and commodity inflation. China’s cyclical reacceleration (Priority: 5/5): China’s industrial/export sector is now contributing meaningfully to the global manufacturing cycle after earlier recovery hopes proved premature. Inflation trough likely behind us (Priority: 5/5): ECRI’s future inflation gauges suggest inflation is not headed cleanly back to 2%; instead, a trough may already be forming and goods disinflation may fade. Central banks and sticky inflation (Priority: 4/5): The discussion highlights political pressure on central banks and the risk that policy easing could be misplaced if inflation expectations rise instead of fall. Gold, commodities, and precious metals (Priority: 3/5): Gold’s behavior is framed as part inflation hedge, part response to global growth and monetary/debt concerns, rather than a simple inverse-dollar trade. Post-game market technicals (Priority: 4/5): The hosts review key levels in SPX, QQQ, VIX, crude, gold, copper, uranium, and the 10-year note, with emphasis on momentum, support/resistance, and catalyst risk.

Key Arguments: The global industrial cycle turned up because ECRI’s long-leading and short-leading indicators confirmed a bottom in industrial production growth across major economies. China’s industrial/export sector, roughly 20% of its economy, is now contributing to the upturn after being prematurely expected to lead much earlier in 2023. The inflation cycle is likely bottoming in 2024, but not necessarily near 2%; goods disinflation may be ending, allowing inflation to stay sticky or reaccelerate. The ECRI future inflation gauge has stopped falling and is now sideways/edging up, which historically points to higher cyclical inflation ahead. Inflation expectations, including 10-year breakevens, appear to be turning up, implying no near-term relief for rates or inflation-sensitive assets. Central banks face human and political constraints; easing into a renewed inflation upturn could recreate 1970s-style higher lows in inflation. Gold is supported not just by the dollar but by global industrial growth, inflation hedging, and broader concerns about debt and policy excess. Market participants should watch future inflation gauges and goods inflation closely because these indicators may signal that consensus assumptions about disinflation are wrong.

Data Points: Macro Voices episode: 431 - Episode number for this transcript Production date: June 6, 2024 - Episode production date S&P 500 June futures: up 100 points / 655 bps to 5,366 - Macro scoreboard as of June 6, 2024 S&P 500 spot: all-time new high - Patrick notes the index closed at a record high US dollar index: down 76 bps to 104.30 - Macro scoreboard WTI crude oil (July): down 651 bps to 74.07 - Macro scoreboard and post-game crude discussion RBOB gasoline (July): down 447 bps to 235 - Macro scoreboard Gold (August): up 145 bps to 2,375 - Macro scoreboard; trading at top of a one-week range Copper: down 397 bps to 460 - Macro scoreboard; near a retracement of the April-May rally Uranium: down 216 bps to 88.30 - Macro scoreboard US 10-year Treasury yield: down 31 bps to 4.30% - Macro scoreboard; yield below May lows Crude oil EIA crude build: 1.2 million barrels - Weekly inventory data in post-game Cushing crude build: 854,000 barrels - Weekly inventory data Gasoline build: 2.1 million barrels - Weekly inventory data Distillate build: 3.2 million barrels - Weekly inventory data Net petroleum build: 6.5 million barrels - Weekly inventory data US oil production: 13.1 million barrels/day - Unchanged in the EIA report SPX spot level: ~5,350 - Post-game technical discussion SPX June 21 implied move: ±100 points - Options-implied range for the monthly OPEX SPX upper/lower implied move: 5,450 / 5,250 - Derived from the implied move QQQ spot level: ~464 - Post-game technical discussion QQQ June 21 implied move: ±12 points - Options-implied range VIX level: near 13 - Volatility discussion; cheap hedging environment Gold key line: 2,400 - Important near-term support/resume-bull-trend level Potential downside in gold: 2,250 - If the rally fails below 2,400 Copper potential short-term support: 440 - Possible tactical downside before support holds Uranium trust discount: about 10% - SPRO physical uranium trust trading below NAV Temporary uranium trust discount: as much as 15% - Recent extreme discount mentioned 10-year note key level: 109 - Level to hold for a possible turn in bonds

Pivotal Quotes: "we made what we call a global industrial growth upturn call" — Lakshman Achuthan: Explaining ECRI’s new cyclical outlook for 2024 "the future inflation gauge, which really nailed the inflation cycle upturn ... stopped falling several quarters ago and has been going sideways" — Lakshman Achuthan: Why ECRI sees sticky inflation and a possible inflation trough "The bottom is in behind us" — Eric Townsend: Framing the interview’s core thesis on inflation expectations and policy risk

Implications: Listeners should expect stronger industrial activity but less disinflation than markets assume, raising the odds of sticky or higher inflation, more pressure on central banks, and renewed upside in real assets and inflation hedges. Technical momentum remains supportive for equities, but bond and commodity turning points deserve close monitoring.