In today’s briefing:
- How Bears Turn Into Bulls
- Why The Pivot May Be Closer Than You Think
- Lack of Labour Market Slack and Preserving High Operating Margins Precludes Fed Policy Pivot
- A very British Coup
- Time and Momentum
How Bears Turn Into Bulls
- The U.S. market is undergoing a change in market leadership.
- Leadership change can be indicative of a long-term bottom process as the old leaders falter and the new leaders take up the baton.
- The market is also very oversold and it is poised to undergo a bear market rally.
Why The Pivot May Be Closer Than You Think
- Market conditions may be on the verge of triggering a pause in the global hiking cycle.
- Possible contagions from uncertainties in the gilt market and euro area bonds, lack of liquidity in the onshore and offshore USD market that increases financial stability concerns for central bankers.
- A monetary policy pivot may be far closer than the market expects.
Lack of Labour Market Slack and Preserving High Operating Margins Precludes Fed Policy Pivot
- Looming weakness in the housing sector is not sufficient for a Fed policy pivot. The current state of labour market conditions precludes the existence of significant supply slack.
- The recovery in the participation rate of prime-aged workers means that an important safety valve for wage inflation is absent. Upward pressure on wages could persist, while productivity may suffer.
- Operating margin forecasts remain optimistic due to the envisaged ability of companies to pass-through higher input costs via price increases, an outcome which will slow the return of price stability.
A very British Coup
- The marvellous British word ‘defenestration’ is seemingly only ever used when a politician is metaphorically thrown out of the proverbial window and as such will doubtless be all over the UK press in the next few days as Chancellor Kwasi Kwarteng loses his job and the administration of Liz Truss hangs by the proverbial thread.
- Already arch Remainer Jeremy Hunt has been appointed in his place and will doubtless be working assiduously to unpick any policy that might offer the UK any competitive advantage over the EU.
- To pick up on the title of Chris Mullin’s political thriller, this has been a very British Coup, engineered by the Remain establishment that has, until now, been frustrated by a brief flurry of democracy (the Brexit referendum) and the rules of the Conservative Party that elected first Boris Johnson and now Liz Truss.
Time and Momentum
- A very helpful and nuanced article from the Wall Street Journal about the CCP conference starting this weekend is a welcome change from the China-phobic rhetoric that had become increasingly dominant in the US, in particular the marking of US claims about China as exactly that, claims, rather than presenting them as ‘fact’.
- However, as usual, it has something of a laundry list of what is ‘going wrong’ in China, including on the one hand the fact that youth unemployment is high, as well as the fact that the population is set to shrink – when the latter is actually a ‘solution’ to the former.
- For us though, perhaps the most interesting statistic was that he has “appointed all but seven of the 281 members of the Communist Party’s provincial-level Standing Committees as of June”, confirming our earlier thoughts about his consolidation of power, and by extension his ability to obtain a third term.
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