In today’s briefing:
- Fed Policy Outlook: Higher for Longer Proves More Durable Than Expected, but US Equities Don’t Care
- How Investable Is China (Revisited)
- Bubbles & AntiBubbles
Fed Policy Outlook: Higher for Longer Proves More Durable Than Expected, but US Equities Don’t Care
- The US economy is displaying signs of re-acceleration, thereby delaying any possible return to below-trend growth. Fed Chairman Powell has reminded investors that monetary policy conduct remains data dependent.
- Stronger economic growth will positively impact corporate profit expectations and US equities. Valuations are priced to perfection versus inflation. Prematurely lowering interest rates could provoke an equity market valuation bubble.
- Labour market weakness is required for the Fed to invoke easier policy. The Fed closed opportunities for banks to engage in interest rate arbitrage via the Bank Term Funding Programme.
How Investable Is China (Revisited)
- We reiterate our view that long-term investors in China are likely to face subpar returns coupled with high volatility.
- China hasn’t even tried to reverse the imbalances from long-standing past economic policies.
- Real-Time market signals indicate further weakness in China, which investors should avoid. In the short run, the Chinese stock market looks washed out.
Bubbles & AntiBubbles
- Keynes once said that markets can stay irrational longer than you can stay solvent.
- I love this quote because it speaks about the power of narratives, and my own humble readaption of that would be:‘‘Narratives can dominate macro longer than you can remain solvent’’.
- This is why today we are going to cover the two strongest narratives out there: China is doomed; AI is the new revolution and US tech will dominate forever.
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