Welcome back to The Barclays Brief Podcast. I am so excited you're here because today we've got lots to unpack. Last week, Ajay walked us through the big macro themes for 2026. Today we're flipping the script: How are investors actually positioned for what could be another rollercoaster year? Joining me in the studio here in New York is someone who has a front row seat to the very best minds in investing, our Global Head of Macro Distribution, Kristen Macleod.

Kristen, thanks so much for being here today.

Thanks for having me. I'm really excited to be here. There's so much to talk about. I've been a huge fan of this podcast since the rollout. It's been a very quick and digestible way to get Research and market views in one place. So thanks again for the time.

Well, thanks for being here on a very busy day in markets, Kristen.

You know that old Harold Wilson line where he said “a week is a long time in politics?” that feels spot on right now. We're recording this on Monday, the 12th of Jan. And in just the past week, the headlines have been relentless as the US administration appears to shift gears ahead of the midterms.

So just some of the headlines include defense sector buyback changes, new rules on corporate’s buying single family homes, caps on credit card rates, government sponsored entities stepping in to buy mortgage backed securities and then overnight - and what I know you've been talking to your clients a lot about today – the DOJ subpoenas the fed. That's a lot to digest.

So Kristen, cut through the noise for our listeners. What do you think investors will be really focused on when you head down to Miami next week for the Global Macro and Inflation Conference?

So yes, quite a bit has happened, to say the least, over the last few days, let alone the last year since we had our 2025 Global Macro and Inflation Conference, which actually happened to overlap exactly with President Trump's inauguration. And at that conference, we mostly debated U.S. debt sustainability, potential tariff policy, and the market consensus at that time was heavily skewed towards higher U.S. yields and a stronger U.S. dollar. And I think, you know, this may sound cliche, but what 2025 taught us about this administration is to expect the unexpected, and that this team is willing to break from historical norms to advance their policy agenda.

So we're now a year forward. We're now looking at the best performing long end in U.S. treasuries versus other developed market countries, and a weaker dollar. Both of these which fit squarely into objectives that Treasury Secretary Bessent has stated as policy goals. Now, while we did indeed touch upon AI at last year's conference, the topic has really shifted to be the front and center thing of almost every single conversation that we're having.

So you had Ajay Rajadhyaksha on the podcast last week, who I think perfectly summed up the current sentiment, which is that markets are going to live and die by this theme this year, as it is almost felt that some of the more traditional drivers of macro markets have really taken a backseat. While we'll be covering everything from global deficits, the health of the US consumer, geopolitical risk premium and the inflation outlook at this year's conference, the AI theme is meant to be weaved in throughout.

So how are clients positioned around the AI trade right now? You know, what's the smart money doing when you speak to them?

So those are the bullish outlook, really predicate their view on the fact that AI is going to lead to higher productivity, a CapEx boom, increased power demand and ultimately reinforce US tech leadership and U.S. exceptionalism.

So if that's your view, what is the best way to express that, outside of just getting long equities? In US rates, one of the more popular expressions is the curve steepener trade. The view is that higher productivity will lead to higher real growth, which means the long end will reprice higher neutral rates. Additionally, many clients with this view also just like to be long real yields, which you can do via TIPS with the view that AI is deflationary over time, but that growth and investment will raise real rates.

In foreign exchange, probably the best way to express a bullish AI view is via dollar strength. And given FX is always a relative value trade, you would look to put lower productivity countries and those lagging on AI leadership on the other side. Many clients in this scenario would argue that the trade is long dollars versus Euro or Japanese yen. And simply this view is that AI CapEx spending is US centric, and that the US will continue to attract global investment flows.

And finally, that higher real yields that we will see as a result of this will support the currency. Then lastly, there's an argument around being long power or electric commodities. So, you could also express that view in macro space via those commodity exporters. People like long Chile given they are the world's largest exporter of copper or long Aussie has been a really popular trade this year, given Australia is a critical supplier of aluminum, iron ore and copper.

Copper has been in the headlines a lot in the last week as well, with potential mergers in the mining sector. Okay, so that's the bullish camp. What about the skeptics around AI for those that aren't quite so sold on the bullish AI story, how did they express that view in their portfolios?

So ultimately, any path where AI ends up being a bust would likely play out as a repricing of growth, CapEx and real rates. I'm stating the obvious here, but pretty much the expressions are the opposite of the trades that we just talked about. In this scenario, you could certainly argue the need to be long duration as a hedge for a broader risk off move, where you would also expect lower growth expectations to lead to a repricing lower of long end rates.

Several of our clients think that long 10-to-30-year treasuries is the appropriate hedge in this scenario. In foreign exchange, you'd want to express a view on the deterioration of the US exceptionalism trade, which would likely be coupled with falling US yields. So again, short dollars. What would you pair the other side with? Most investors in this scenario would argue that the right counter to a short dollar trade would be long yen or long Swiss Franc, which would both benefit from a carry trade unwind, as well as a flight to quality bid.

And then a lot of clients also argue that the long gold trade is a great AI disappointment hedge, given its anti-dollar safe haven characteristics. Lastly, in the scenario where you see a broader AI unwind, most clients are going to argue that you'd want to be long vol and you could express that either in FX or rates.

So that's positive and not so positive views around AI. Let's move away from the AI trade for a moment as there's lots of other things going on. Most recently, and most prominently, is the announcement last night that the DOJ has served the fed with a subpoena. How are clients thinking about that situation and what else are you talking to investors about right now, that could become a big theme at the conference and indeed in markets this year?

Well, again, as you as you mentioned earlier, Patrick, there is a lot going on. And, it really has felt like headline ping pong since the, you know, very short start to this year.

I like that. That could be the title of the podcast “headline ping pong”.

Exactly. So look, I think, you know, while the market has looked through some of these events in some of these headlines in the near term, you can't ignore them altogether given some of the bigger picture ramifications. By and large, the market has been pretty sanguine on the fed independence theme. But that's certainly reared its head again last night on those headlines.

The market reaction hasn't been huge today. We've seen gold up a little bit, the dollar down a little bit. Not as much as you would necessarily expect given the shock factor, I think of some of those headlines. But really what the market is telling you is that they still expect institutions to hold. I would just say that either way, this narrative is going to continue to linger on the sidelines, especially given we have the Cook ruling coming up at any point now.

And then again, as Ajay noted on last week's podcast, the Venezuela situation is likely an isolated one from a macro market perspective, but many clients are of the belief that that escalation likely means less of a chance of a Russia Ukraine ceasefire, maybe more of a chance of a China Taiwan escalation. And then you throw the new Donroe Doctrine in there in regards to Greenland. And while the probability may be low, it's hard to imagine that that wouldn't lead to a broader risk off spiral.

And then lastly, the story on tariffs is just not going to go away. I think the risk that you have this year is that you see a ratcheting up in rhetoric again, as some of these temporary truces lapse.

This is going to be particularly true with US and China, given how finely balanced some of these deals are around tech supply chains and rare earths.

Okay, so the tariff story isn't going away. And some of the headlines we spoke about, like the GSEs buying the mortgage-backed securities, the capping credit card rates, which no doubt the large-cap banks will talk about this week as their results are coming up.

Those headlines sound like a push to keep the economy running hot. Now, we don't need to talk about the US consumer because our sister podcast, The Flip Side, did a great job of debating the, the hard data and the survey data that we're seeing there. But talk to me about the US going into the midterms. You know, what are your views?

Well, look, as you mentioned earlier, the president certainly seems to have shifted his focus to the midterms, given some of the recent announcements, which seem to have ratcheted up the intensity on these efforts, well beyond what we even saw last year with respect to redistricting across the US. So, I think many expect that we will start to see and hear more measures and policy changes to address this affordability crisis like we did last week around mortgage bond purchases.

Okay. So, it's amazing, we've been talking about the Global Macro and Inflation Conference, but we've not even talked about inflation. In fact, I don't think we've mentioned that word yet. Markets is sitting right near the Fed's 2% target. Is that complacency creeping in here?

I think so a little bit. But I mean this is certainly a theme that seems to have drifted into the background in the back half of last year and certainly coming in in this year. But I do expect that this is going to be a debated topic next week. Again, we're really excited to hear what our expert speakers have to say about this at our conference, where we will be hearing from 2024 Nobel Laureate in economics Daron Acemoglu, among other high profile external speakers in addition to our own risk takers and research teams. I think we'll have some lively discussions on the topic.

But ultimately, our Head of Inflation Research Strategy, Jonathan Hill, wrote about the complacency that you're referring to here, and he basically called out that fixed income markets are underpricing upside inflation risks, and they're making the assumption that wage pressures will not reemerge.

So, while we do expect core inflation to firm in the next coming months before slowing again mid-year, at which point we think The Fed will resume its easing cycle in June and December. And then to bring this all back full circle, this is while we have barely touched the surface in terms of productivity gains from AI that could put downward pressures on prices.

But again, excited to listen to the experts on all of these topics.

Well, lucky you, you're going to be in the warmer weather in Florida and we'll be going back out to the freezing cold of New York soon. But Kristen, thanks a lot for joining me today.

Thanks for having me. This is a great way to start the year, given what is undoubtedly going to be another exciting year in macro markets.

So it's been an eventful 24 hours for me since I landed in New York, and Kristen has given us plenty more to think about across AI, geopolitics, The Fed and inflation, and no doubt at the Conference next week, those themes will be hotly debated.

I loved how Kristen described the current news flow as like headline ping pong, but it's worth remember that in 2025 there were plenty of other dramatic headlines, but the US economy still grew over 2% (Q4/Q4 2025) despite a trade war, despite limited job creation and a soft housing market.

So the headlines can well be dramatic, but markets tend to follow the data and to stay on top of that data and or market themes and risks, hit like and subscribe to the Barclays Brief and we'll see you next time.