Macro Moments Weekly: Does the song remain the same?

Many investors have sat at their desks and scanned for something new to refresh the portfolio, like a sorbet refreshes the palate. Markets have obstinately refused to serve up such a delicacy and have reminded investors that the menu has not changed, that recent trends remain in place. Defence stocks continue to outperform on the news that the United States and other nations are increasing military spending. Spreads between yields of UK Gilts and German Bunds continue to narrow as the bond market worries about issuance. Meanwhile, gold gives up none of its lustre, and neither does silver. For the artificial intelligence bulls, Taiwan Semiconductor Manufacturing Company (TSMC) beat earnings expectations in the fourth quarter, announced increase capital expenditures and raised its earnings outlook for 2026.¹

The productivity surge

But there is a challenge to the accepted order, and that is from US productivity, which grew 4.9% in the third quarter of 2025.² That may feel like a long time ago, but government shutdowns delayed the data release. The number is unusually high, at a level normally seen only when the economy is starting a recovery, not mid-cycle. Historically, we can see that when we find such a high productivity number, the market shows significant positive returns over the next two-year period. A strong productivity gain indicates there is plenty of spare capacity in the economy and is not inflationary.

During this current reporting season, investors in Europe are focusing on finding evidence of a similar recovery to that in the United States. We need to examine margin growth, evidence of spare capacity and order inflows. German factory orders certainly surprised to the upside this past week.³ In 2025, there was a debate about why employers were ‘hoarding labour.’ The question now is, ‘Are they over-staffed?’

We have the answer: Yes! Three recruitment companies (Pagegroup, Robert Walters and  Hays) reported earnings this past week, and it is clear that hiring trends remain very weak in northern Europe, whilst they are stabilising in the United States and bottoming out in the United Kingdom  So if we start to see a recovery in European gross domestic product, which is the market consensus, we will likely see a rise in productivity. Will it be as great as in the United States? Probably not, but it would indicate that profit margins for European companies could rise.

Trends in bond issuance

Bond markets are in a technical consolidation phase. We can see that issuance is likely to rise in 2026, especially from the benchmark-setters—the United States, Japan and Germany. It would be natural to expect that spreads versus others may decline. But we have to factor in that in the United States and United Kingdom, issuance of long-dated paper is very limited. This restriction of supply is aimed at cutting rates at the long end of the yield curve, which in the United States can have the effect of lowering the interest rate of the key 30-year house mortgage.

In the United Kingdom, the issuance aim is to lower the interest paid as a percentage of government income, which is currently running over 8%. In the case of the United Kingdom, there are signs it’s working: Whilst spreads versus Germany have returned to the average of the last five years, they are significantly lower, at 153 basis points (bps) than the trepidatious level of a year ago, when they touched 230 bps.

Parting shot

Whilst the trends in the market look exactly the same as in 2025 (at least on a superficial level), it is quite possible that we are entering a new phase. As we watch and examine the evidence, we need to frame the question appropriately, and it is challenging and unexpected: Did 2025 mark the bottom of the last economic cycle, and are we entering a new, productivity-driven one?