Disclaimer: The following content is an archive of Substantive Research Discovery Trending Themes, as delivered as weekly insights to our paid subscribers. Links to gated content have been removed.
Gavekal: Supports And Threats To US Consumption
Wage growth in the US has moderated but still continues at a decent clip
Americans are still holding “excess savings” dating to the pandemic
New home prices in the US have fallen sharply in 2023 but existing home prices have risen slightly in the period
US consumers are still buying on credit, despite high interest rate. Click here.
Capital Economics: PMIs don’t alter the weak outlook for 2024
November’s PMIs suggest that global industry might be past the worst
However, industrial production has barely risen in recent months, and forward looking conponents of global PMIs suggest demand remains week, as does sentiment on future output and new orders are falling.
Indeed the new export orders PMI is consistent with CE’s view that the weakness in world trade will continue into the beginning of 2024. Click here.
StoneX: The productivity miracle and the gig economy
Productivity spiked to 4.7% in Q3, mostly due to denominator effects: disinflation and fewer work hours
The gig economy is facing cyclical headwinds: the Airbnb bubble is bursting, and Uber fares are dropping
Participation has returned to its pre-COVID levels, and non-gig workers are getting historical pay raises
Workers’ ability to arbitrage between gigs and the formal economy should smooth the business cycle
The economy has reset to higher rates and nominal growth – either because of productivity or inflation. Click here.
MI2 Partners: Employment: Goldilocks Isn’t Easy and ISM Upside
In 2 pieces this week MI2 Partners have laid out the case that (while delicately balanced) their models suggest that far from Goldilocks, the US economy is still running “too hot”, with financial conditions too easy.
In the first piece ”Employment: Goldilocks Isn’t Easy” they explain that while we can all hope that, as in 1994-96, a burst of AI-driven productivity delivers Goldilocks, until that event occurs, on balance, the labour market still feels slightly “too hot”. Thus, the Fed should push back against the current easing of financial conditions.
In the second piece ”MI2 Chart Point: ISM” discusses the risk of a stronger than expected ISM after Thursday’s robust Chicago PMI (As it turned out today’s ISM was fairly flat versus previous print). Nonetheless the point MI2 makes here is that the market has become more too optimistic for rate cuts in 2024.
MRB: 2024 Asset Allocation Outlook: A Maturing Cycle, But The End Is Not Yet Nigh
A Goldilocks scenario may prevail in the near term, but the investment landscape will get more difficult as the year and economic cycle progresses.
It is premature to conclude that a bond bull market is underway. Bonds are unwinding an oversold condition, and markets are now overly aggressive in forecasting deep Fed rate cuts in the year ahead.
MRB are maintaining their neutral stance on bonds within a multi-asset portfolio on a 6-12 month horizon. Favor emerging market local-currency and investment-grade corporate bonds over high-yield issues within credit exposures. Click here.
