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Roth MKM: Cycle Update: Nominal GDP, Money & Other Observations

If nominal GDP is slowing to (or below) trend, a policy rate of 5.25-5.50% will be far too high

The 0.5 percentage point rise in the unemployment rate from the cycle low seen in January and April doesn’t look like much at face value but could be signaling a cycle peak.

The problem for the equity market is that forward earnings estimates are about the same as they were in the summer of last year, yet valuations are 3 points higher and market interest rates are more than 100 bps higher. Click here.

Credit Agricole: The recession that never comes

The transmission of tighter financial conditions to the real economy is impacted by the fact that many major economies having become less interest rate sensitive, potentially lengthening the lags of transmission into the real economy.

This is particularly the case in the US, where not only have interest rate sensitive sectors such as manufacturing declined substantially as a portion of the economy, but many households (mortgages) and corporations have locked in long–term debt at low rates, thus offering some insulation from rising rates for now

In the case of NFCs, having locked in lower rates, the rising income from cash assets tends to offset the cost of debt on the liability side of NFC balance sheets. Click here.

SG: Is the big surprise for 2024 going to be a cyclical deflationary bust?

We can see that US M2 is contracting at the fastest rate since the Great Depression, but that is dismissed by many as a mere statistical quirk

But when aggregate bank lending also starts shrinking for only the second time since 1949 (the only other time being the GFC in 2008), surely it’s time for the money supply ‘deniers’ at The Fed (and the ECB) to sit up and take note?

Epiq’s latest bankruptcy data shows a shocking 106% surge yoy. This is just the tip of a huge corporate Zombie iceberg now being exposed – with smaller companies most vulnerable. Click here.

TS Lombard: V close to recession

The US and Japanese economies are still absorbing pandemic stimulus…

… and this is protecting them from immediate tightening damage

Europe and China are much more vulnerable to past tightening. Click here.

3FourteenResearch: What the US Treasury’s funding remix tells us about the economy going forward

If the Treasury moves forward with a 50/50 bill/coupon funding mix through next year, it will push bills up to ~25% of outstanding debt by the end of 2024.

Historically, this is a level only observed during or following a recession. Click here.

Liberum: How to Invest for a Labour Government

Liberum expect the UK election to be a key feature for their coverage in the next 12 months.

In the UK, while a Labour government seems most likely at this stage, Liberum see them as having the same fiscal constraints as the current government.

But there will be some impact on the detail which they explore in this 219 page note. They continue to be positive about the infrastructure outlook, but see mix changes with Transportation more challenged and with strength in Water  and the Energy transition. Click here.