In today’s briefing:
- So, Recession?
- July Market Thinking
So, Recession?
- Amongst the many forward-looking economic indicators I focus on, you will know by now that one of my preferred metrics is my G5 Credit Impulse series: it measures the pace of change of credit creation in the 5 largest economies worldwide and it serves as a very reliable leading indicator (6-15 months lead time) for economic growth and the performance of several asset classes.
- Why? Because as our structural ability to deliver economic growth is impaired by weak demographics and stagnant productivity, we learnt that printing money out of thin air works as a (temporary) substitute: the more money we inject in the private sector, the more likely we’ll get a cyclical boost to economic growth.
- Slow down that process, and growth will cyclically slow down too.
July Market Thinking
- June ended with one of the worst first half performances for capital markets for decades, representing a serious blow to wealth in that both Bonds and Equities have been hit badly.
- We continue to believe that the underlying stress is coming from fixed income markets, which remain the key area to watch as they unwind the excess liquidity pumped into them over a decade of QE and more recently at the start of Covid, when the Fed had to inject liquidity to prevent a run on the whole fixed income ETF complex.
- At the end of May/beginning of June we saw a few signs of stabilisation only to see them unwind rapidly in the first half of the month.
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