Global Economist, DeSaque Macro Research

Said Desaque

Global Economist

Delivering Global Macro Investment Insights

DeSaque Macro Research

DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the view to delivering global macro investment insights aimed at providing new ideas to clients.

Said DeSaque has over 26 years of experience working as a professional economist in financial services. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist at Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he eventually became Head of the London Economics Department.

Said takes a very keen interest in international relations, along with their implications for economic development. His research interests include the economic transformation of China and its implications for global capital markets, particularly in the United States. He is a member of Chatham House in London.

The US economy and capital markets have historically been Said’s main focus of attention. He frequently presents his views to institutional investors in diverse geographic locations. In recent years, Said has also been carefully monitoring economic developments in Asia, particularly China and Japan.

Macroeconomics

<p>Bond investors and the Federal Open Market Committee (FOMC) expect economic growth to be strong in 2021, thereby raising inflationary risks, but the latter anticipates slower expansion next year to justify not having to invoke a monetary policy offset. Meanwhile, despite the idiosyncratic features of the Great Lockdown, there has been a general lack of commentary about the potential risks for economic outcomes to fall short of expectations.</p>
<p>The Great Lockdown highlighted a large divergence between notional and effective demand, a gap which was quickly reduced once restrictions on social gatherings were eased. Political decisions to combat COVID-19 over the past 14 months make forecasting the unfolding dynamics that will underpin future economic growth much more difficult than usual.</p>
<div>The recovery in US aggregate demand was rapid and extremely robust after an extraordinary contraction in 2020 Q2, thereby already reducing the impact of pent-up demand for big-ticket items on subsequent economic growth. Despite production weakness due to supply chain dislocation, automobile and light truck sales have already surpassed their previous cyclical peak. Home sales have held up well over the past year, despite supply shortages, while housing starts have quickly recovered to surpass their highs during the prior expansion.</div>
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<div>US capital spending has also recovered very quickly, with the exception of structures, since 2020 Q2. Meanwhile, the recovery in capacity utilisation rates and the average age of the capital stock do not currently suggest that companies will be in a hurry to add to capacity. Companies will need to learn more about the post-pandemic economic environment before committing to large capital spending projects.  </div>
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<div>The scope for the US economy to underwhelm expectations should not be under-estimated as testified by the recent decline in bond yields. A flatter yield curve due to slowing growth will, however, provide a more supportive backdrop for growth stocks.</div>

Bond investors and the Federal Open Market Committee (FOMC) expect economic growth to be strong in 2021, thereby raising inflationary risks, but the latter anticipates slower expansion next year to justify not having to invoke a monetary policy offset. Meanwhile, despite the idiosyncratic features of the Great Lockdown, there has been a general lack of commentary about the potential risks for economic outcomes to fall short of expectations.
The Great Lockdown highlighted a large divergence between notional and effective demand, a gap which was quickly reduced once restrictions on social gatherings were eased. Political decisions to combat COVID-19 over the past 14 months make forecasting the unfolding dynamics that will underpin future economic growth much more difficult than usual.
The recovery in US aggregate demand was rapid and extremely robust after an extraordinary contraction in 2020 Q2, thereby already reducing the impact of pent-up demand for big-ticket items on subsequent economic growth. Despite production weakness due to supply chain dislocation, automobile and light truck sales have already surpassed their previous cyclical peak. Home sales have held up well over the past year, despite supply shortages, while housing starts have quickly recovered to surpass their highs during the prior expansion.

US capital spending has also recovered very quickly, with the exception of structures, since 2020 Q2. Meanwhile, the recovery in capacity utilisation rates and the average age of the capital stock do not currently suggest that companies will be in a hurry to add to capacity. Companies will need to learn more about the post-pandemic economic environment before committing to large capital spending projects.  

The scope for the US economy to underwhelm expectations should not be under-estimated as testified by the recent decline in bond yields. A flatter yield curve due to slowing growth will, however, provide a more supportive backdrop for growth stocks.

Sustained Upside Surprises to US Economic Growth? Big-Ticket Spending Recoveries Suggest Otherwise

<div>In the aftermath of the global financial crisis (GFC), the Fed had the difficult tasks of repairing household balance sheets and subsequently providing continued support for aggregate demand in the absence of consistent help from fiscal policy. The cause of the Great Lockdown was, however, fundamentally different to the Great Recession: Fed policy easing could not boost aggregate demand due to restrictions on social gatherings. Consequently, the Federal Open Market Committee (FOMC) took decisive action to ease potential stress on corporate balance sheets due to the shutting down of economic activity, while the responsibility of supporting aggregate demand was left to fiscal policy.</div>
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<div>The FOMC views transitory breaching of the 2% inflation target as a desired policy outcome, but the big issue for financial markets, in its aftermath, will be the economic cost that will be incurred to re-gain price stability. FOMC members are confident that any inflation overshoot can easily be brought back under control. </div>
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<div>The speed of the US economy entering inflationary territory will hinge critically on the size of the fiscal multiplier, estimates of which vary significantly. Meanwhile, different segments of the Biden Administration's fiscal stimulus will have idiosyncratic multiplier values, but the majority of costed measures are estimated to have magnitudes in excess of 1.</div>
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<div>The political backdrop over the next eighteen months could have a major impact on inflation if there is any further fiscal easing and the Fed refuses to alter forward guidance due to a tight nexus with the US Treasury. Some comparisons are already being made to the mid-to-late-1960s when prolonged easing of fiscal policy sowed the seeds for rising inflationary expectations that undermined Fed's credibility during the 1970s. Financial markets' inflationary expectations have recently been based on a much flatter Phillips Curve that has allowed the Fed leeway to keep policy easier for longer, but an adverse shift is possible if inflationary expectations become unhinged due to FOMC complacency, an outcome similar to events in the late-1960s.        </div>

In the aftermath of the global financial crisis (GFC), the Fed had the difficult tasks of repairing household balance sheets and subsequently providing continued support for aggregate demand in the absence of consistent help from fiscal policy. The cause of the Great Lockdown was, however, fundamentally different to the Great Recession: Fed policy easing could not boost aggregate demand due to restrictions on social gatherings. Consequently, the Federal Open Market Committee (FOMC) took decisive action to ease potential stress on corporate balance sheets due to the shutting down of economic activity, while the responsibility of supporting aggregate demand was left to fiscal policy.

The FOMC views transitory breaching of the 2% inflation target as a desired policy outcome, but the big issue for financial markets, in its aftermath, will be the economic cost that will be incurred to re-gain price stability. FOMC members are confident that any inflation overshoot can easily be brought back under control. 

The speed of the US economy entering inflationary territory will hinge critically on the size of the fiscal multiplier, estimates of which vary significantly. Meanwhile, different segments of the Biden Administration's fiscal stimulus will have idiosyncratic multiplier values, but the majority of costed measures are estimated to have magnitudes in excess of 1.

The political backdrop over the next eighteen months could have a major impact on inflation if there is any further fiscal easing and the Fed refuses to alter forward guidance due to a tight nexus with the US Treasury. Some comparisons are already being made to the mid-to-late-1960s when prolonged easing of fiscal policy sowed the seeds for rising inflationary expectations that undermined Fed's credibility during the 1970s. Financial markets' inflationary expectations have recently been based on a much flatter Phillips Curve that has allowed the Fed leeway to keep policy easier for longer, but an adverse shift is possible if inflationary expectations become unhinged due to FOMC complacency, an outcome similar to events in the late-1960s.        

Fed Credibility and Risks to Achieving Dual Mandate: Facing Ominous Comparisons to the Late-1960s

Cross Asset Strategy

<div>Household-based measures of US labour market strength in March suggest the Federal Open Market Committee (FOMC) will not need to alter forward guidance in 2021, despite the much larger-than-expected increase in non-farm payrolls. Meanwhile, strong readings in the ISM surveys for manufacturing and services last month suggest Q1 growth in excess of +6%, although the trajectory for Q2 will depend heavily on how new stimulus payments are utilised by US households.</div>
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<div>Hitherto, stimulus payments to households have produced unintended consequences, notably the paying down of credit card debt and higher retail activity in the US equity market as opposed to being spent in its entirety in the real economy. The shutting down of the economy in 2020 provided households an opportunity to repair balance sheets, but the level of thrift is currently still higher than a year ago, thereby suggesting that fiscal policy easing has not been totally effective in boosting consumer spending.</div>
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<div>The biggest threats to the outlook for US equities stem from potential policy mistakes by the Fed and the Biden Administration, notably the latter's plans for further fiscal policy expansion under the auspices of infrastructure programmes. Strong economic expansion and a rise in the velocity of circulation of money will test the tenability of the FOMC's forward guidance and asset purchases as pressure on hitherto well-anchored inflationary expectations will ultimately increase.    </div>

Household-based measures of US labour market strength in March suggest the Federal Open Market Committee (FOMC) will not need to alter forward guidance in 2021, despite the much larger-than-expected increase in non-farm payrolls. Meanwhile, strong readings in the ISM surveys for manufacturing and services last month suggest Q1 growth in excess of +6%, although the trajectory for Q2 will depend heavily on how new stimulus payments are utilised by US households.

Hitherto, stimulus payments to households have produced unintended consequences, notably the paying down of credit card debt and higher retail activity in the US equity market as opposed to being spent in its entirety in the real economy. The shutting down of the economy in 2020 provided households an opportunity to repair balance sheets, but the level of thrift is currently still higher than a year ago, thereby suggesting that fiscal policy easing has not been totally effective in boosting consumer spending.

The biggest threats to the outlook for US equities stem from potential policy mistakes by the Fed and the Biden Administration, notably the latter's plans for further fiscal policy expansion under the auspices of infrastructure programmes. Strong economic expansion and a rise in the velocity of circulation of money will test the tenability of the FOMC's forward guidance and asset purchases as pressure on hitherto well-anchored inflationary expectations will ultimately increase.    

Strong US Economic and Equity Market Outlooks: Investors Only Have Policy Mistakes to Fear

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Thomas Schroeder

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Chart Partners

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Technical Analysis

Nasdaq-100 Stock Index / Technical Analysis

<p>Our bull view called to buy tactical weakness (SPX 3,850) for a push into ideal high targets centered around the top of the SPX rising wedge near 4,140/50. Mid April top near SPX 4,100 for a pullback and rally to this objective is our preferred sequence.</p><p>Tech and growth sectors are favored at the expense of energy, banks, small caps and now the DJI as the underperform group.</p><p>Bearish rising wedge patterns are due to mature into late April in the SPX, Japan, Taiwan, India, MIB and FTSE stand out as clear red flags going into late April.</p>

Our bull view called to buy tactical weakness (SPX 3,850) for a push into ideal high targets centered around the top of the SPX rising wedge near 4,140/50. Mid April top near SPX 4,100 for a pullback and rally to this objective is our preferred sequence.Tech and growth sectors are favored at the expense of energy, banks, small caps and now the DJI as the underperform group.Bearish rising wedge patterns are due to mature into late April in the SPX, Japan, Taiwan, India, MIB and FTSE stand out as clear red flags going into late April.

US Growth to Perform and Short Pairs to Work Into

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

<p>The price or yield action on US 10 year Treasury is now beginning to reveal a loss of momentum and indicate at least a consolidation if not lower yields in the short term.</p><p>A move below <strong>1.58%</strong> would be particularly telling.</p><p>What this, and the developing price action on Oil, tells us about equities is up for interpretation – though from our stand point the bias is to remain cautious on equities as we settle into the new month and quarter.</p>

The price or yield action on US 10 year Treasury is now beginning to reveal a loss of momentum and indicate at least a consolidation if not lower yields in the short term.A move below 1.58% would be particularly telling.What this, and the developing price action on Oil, tells us about equities is up for interpretation – though from our stand point the bias is to remain cautious on equities as we settle into the new month and quarter.

United States

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

S&P 500 INDEX (SPX INDEX)

Sustained Upside Surprises to US Economic Growth? Big-Ticket Spending Recoveries Suggest Otherwise

US investors bought the idea of strong growth in 2021 and beyond, but the quick rebound in consumer and capital spending suggest little pent-up...

DeSaque Macro Research

Fed Credibility and Risks to Achieving Dual Mandate: Facing Ominous Comparisons to the Late-1960s

The current environment and late-1960s are similar due to easy fiscal and monetary policies. Fiscal multipliers will have the final say whether...

DeSaque Macro Research

Strong US Economic and Equity Market Outlooks: Investors Only Have Policy Mistakes to Fear

US economic activity has strong momentum entering Q2 when stimulus payments will impact growth. Rosy economic and profit scenarios suggest policy...

DeSaque Macro Research

US Growth to Perform and Short Pairs to Work Into

Our bull view called to buy risk at SPX 3,850 for a push into ideal high targets centered around the top of the SPX rising wedge near 4,140/50. Mid...

Thomas Schroeder

US 10 Year Yield – What to Watch

A more cautionary short term picture is beginning to unfold indicating lower US 10 year yield which raises questions for other markets including US...

Shyam Devani