Last week, the US GDP growth figure for Q3 came in lower than expected, while prices moved higher than anticipated and the US Employment Cost Index update rose at its fastest pace in 31 years. The headline increase was driven by the biggest surge in wages since 1982, up 1.5% in the third quarter. Substantial productivity gains would be required now to offset this rise in wages. Without gains in productivity and/or a fall in labour costs, there could be a risk to the Fed’s message about “transitory” inflation pressures. We expect the Federal Reserve to announce plans to taper its quantitative-easing programme following its meeting this week. Meanwhile, Christine Lagarde last week pushed back on market bets on rate hikes, meaning the European Central Bank is
Topics:
Cesar Perez Ruiz considers the following as important: 2) Swiss and European Macro, 2.) Pictet Macro Analysis, Featured, Investment review, Macroview, market outlook, newsletter, Pictet, Weekly View
This could be interesting, too:
Vibhu Vikramaditya writes Navigating the Slippery Slope: How Hoover’s Interventions Paved the Way for the Great Depression
Ryan McMaken writes Frédéric Bastiat Was a Radical Opponent of War and Militarism
Douglas French writes Millennials: In Costco We Trust
Joseph T. Salerno writes What Fed “Independence” Really Means
Last week, the US GDP growth figure for Q3 came in lower than expected, while prices moved higher than anticipated and the US Employment Cost Index update rose at its fastest pace in 31 years. The headline increase was driven by the biggest surge in wages since 1982, up 1.5% in the third quarter. Substantial productivity gains would be required now to offset this rise in wages. Without gains in productivity and/or a fall in labour costs, there could be a risk to the Fed’s message about “transitory” inflation pressures. We expect the Federal Reserve to announce plans to taper its quantitative-easing programme following its meeting this week. Meanwhile, Christine Lagarde last week pushed back on market bets on rate hikes, meaning the European Central Bank is likely to leave rates unchanged. Yet markets have begun to test central banks’ resolve on this front. Last week, the two-year Australian government bond yield surged far beyond its target after the central bank declined to defend it. We are underweight sovereign bonds. Elsewhere, Brazil’s central bank surprised markets with a 150 bps rise in its reference rate in an effort to combat inflation. But the move failed to stabilise the Brazilian real. We prefer developed- over emerging-market equities.
In third-quarter earnings, some positive surprises, including big buyback announcements, have supported markets. Big tech earnings have been mixed, however, with those companies exposed to semiconductor and labour shortages lagging. As a result, the earnings-per-share beat declined from the previous week, indicating a loss of momentum in positive revisions. After excluding the financials sector, the Q3 reporting picture is even less rosy, with stagnating margins. We are neutral equities.
US president Biden is struggling to find congressional approval for a fiscal plan that has already seen its price tag halved to USD1.75 trn. So far, it has been proposed that a wealth tax and a minimum 15% corporate tax rate could finance the bill. The chances of a higher corporate tax rate in 2022 therefore look quite slim for now, which could deliver a positive surprise for 2022 corporate earnings growth. Elsewhere over the weekend, the ruling LDP party won Japan’s general election, with new PM Fumio Kishida securing enough of a majority to pursue fiscal expansion plans. We are positive on Japanese equities. In the weeks ahead, we hope world leaders at COP26 in Glasgow will agree to solid actions to significantly reduce global greenhouse-gas emissions to keep global warming at 1.5 °C.
You Might Also Like
Weekly View – Widening bottlenecks
2021-10-19
After September’s negative performance, last week proved one of the strongest in a while for equity markets. This rebound followed news that the Biden administration will start to tackle the supply-chain and logistics issues that have been preventing deliveries.
Weekly View – Debt ceiling deadline postponed
2021-10-14
China’s high-yield bond crisis continued last week, with yields on the ICE BofA index of Chinese high-yield US dollar bonds moving above 18% at one stage last week, the highest level in a decade. Further nervousness was caused by one real-estate issuer’s decision not to reimburse USD200 mn of offshore bonds–despite having USD4 bn in cash on its balance sheet.
House View, October 2021
2021-10-05
We maintain our tactically neutral position on equities, with the notable exception of Japan, where we see scope for a re-start to Abenomics and for Japanese stocks to continue to close their performance gap with their peers in other developed markets.
Swiss Retail Sales, August 2021: 0.2 percent Nominal and 0.5 percent Real
2021-10-04
04.10.2021 – Turnover adjusted for sales days and holidays rose in the retail sector by 0.2% in nominal terms in August 2021 compared with the previous year. Seasonally adjusted, nominal turnover rose by 1.4% compared with the previous month. These are provisional findings from the Federal Statistical Office (FSO).
Weekly View – “The lady is not tapering”
2021-09-14
As expected, last week the European Central Bank hinted at a “moderate” reduction of the bond buying it undertakes as part of its Pandemic Emergency Purchase Programme (PEPP). But ECB president Christine Lagarde refrained from providing a precise timeline and she was adamant that a reduction in PEPP purchases did not mean the ECB would tighten financing conditions.
Weekly View – 50 years later
2021-08-17
The rosy US employment picture helped push equities to a new high as US inflation moderated in July. Those looking to fill roles now exceed those looking for work, compelling some small and mid-sized companies to raise wages. Higher prices seem to be keeping the US consumer in check, however, with consumer sentiment hitting its lowest level in a decade.
Weekly View – Staying on script
2021-07-20
Big US banks released their 2Q earnings last week. The figures were good thanks to robust growth in investment-banking income as well as a drop in loan-loss provisions. But banks also reported that wage costs were beginning to rise, and while a booming housing market has boosted mortgage-loan business, the renewed retreat in long-term yields has been a drag on interest income.
Swiss Producer and Import Price Index in June 2021: +2.9 percent YoY, +0.3 percent MoM
2021-07-13
The Producer and Import Price Index rose in June 2021 by 0.3% compared with the previous month, reaching 102.7 points (December 2020 = 100). In particular, basic metals and semi-finished metal products, scrap and petroleum products saw higher prices.
Tags: Featured,Investment review,Macroview,market outlook,newsletter,Pictet,Weekly view