Explaining The Great Market Paradox

As we discussed recently, and as DB's Henry Allen noted in an overnight report, there’s currently a huge divergence in market narratives: on one hand we have growing signs of weakness, both in markets and the real economy, on the other, risk assets are melting up at a staggering pace as if there isn't a care in the world. In other words, good news is good news and bad news is better news. 

That said, it’s not hard to find things going wrong. The last couple of weeks have seen a clear data deterioration, leading investors to price faster rate cuts (which may well have been the reason behind the latest market meltup, one which we predicted in late August). There's more: geopolitical risk remains high, with this month alone seeing Russian drones over Poland, and an Israeli strike in Qatar. Fiscal fears are prominent. The full tariff impact is still to come. And in a classic sign of fear, gold prices are at a record high, even in real terms.