What Is Global Macro? – WSJ

Wall Street professionals often refer to “global macro,” but few outside of the finance world have any idea what it means or why it matters to investors.

Global macro is a term for underlying trends that are so large that they could lift or drop the economy or vast chunks of the securities market, says

Peter Tchir,

head of global macro at New York-based Academy Securities. “As a whole, they are huge driving factors,” he says.

They differ from micro factors, which may affect the performance of a single company or subsector of the market.

Mr. Tchir sees three major macro trends that will drive the global economy and the stock market in the near term: inflation, taxes and how the focus on environmental, social and governance practices could change Western companies’ relationships with China.

Inflation: “What is going to drive everything is inflation,” Mr. Tchir says. Inflation jumped to an annualized rate of 4.2% in April, up from 0.1% in May 2020, when inflation was at its lowest level since 2015, according to U.S. government data collated by TradingEconomics.com, a financial website. Some analysts see the trend continuing.

Higher inflation, Mr. Tchir says, likely would mean increased borrowing costs. When inflation rises, bond investors tend to demand higher yields on their investments, which leads to higher interest rates.

Growth stocks such as those in the tech sector could suffer as a result. That’s because higher bond yields might lead some investors to switch to fixed-income securities because they prefer the stability of a fixed coupon payment over the risks of owning a potentially volatile growth stock.

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Separately, higher inflation will raise consumer living expenses and the cost of raw materials for corporations. There will be winners and losers. Oil-and-gas companies, banks and small-cap companies, for example, should benefit, Mr. Tchir says. “I think it will be a benefit to sectors that can pass those costs on,” he says.

• Corporate tax bills: The recent uptick in planned government spending is likely to mean higher taxes, but not necessarily higher tax rates, says Mr. Tchir. “I believe President Biden will get a lot of pushback on raising the overall tax rate,” he says.

The federal corporate tax rate remained at 35% from the early 1990s until 2018, when it was cut to 21%.

Instead of increasing that rate, it’s more likely there will be a proposal for a minimum corporate tax paid, Mr. Tchir says.

Such a move would likely affect larger companies more than smaller ones. Larger companies have historically been more adept at reducing their effective tax rate.

• China changing: The relationship that businesses have with China also is changing. As U.S. and other Western companies face increased scrutiny about the sustainability of their businesses, executives may need to be more cautious in their dealings with China, given its continuing issues with human-rights abuses and pollution. “Companies will need to be careful about their supply lines, and that their suppliers are complying with ESG expectations,” Mr. Tchir says.

In addition, businesses are waking up to the idea that while they have been able to produce goods in China, selling to the country may be a nonstarter. “Everyone had huge hopes of selling into China, but there is a growing sense that it will always be a protected market,” Mr. Tchir says.

Mr. Constable is a writer in Edinburgh, Scotland. He can be reached at reports@wsj.com.

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