Macro-economy news

November 26, 2021

Concern about the emergence of a new Covid variant

With markets slowing down due to Thanksgiving in the US, news of the rapid diffusion of a new variant (B.1.1.529) in South Africa and neighbouring countries has spread like wildfire and has already had notable consequences: a sharp decline in Asian equity markets and a fall in bond yields, with the US…
November 25, 2021

The situation is becoming untenable for central banks

The avalanche of statistics published yesterday in the US before the long Thanksgiving weekend confirmed the reacceleration of activity and growing inflationary pressures: higher than expected household spending and income in October, rebound in investment (durable goods orders), lowest level of unemployment claims since 1969, but a drop in household…
November 24, 2021

Busy day before Thanksgiving in the US

Markets are hesitant: US bond yields eased after approaching their recent highs yesterday. The 10-year bond touched 1.68%. The economic indicators continue to show a solid global economic recovery, which carries serious inflationary risks, and which could change the hitherto very confident analysis of central banks on the transitory nature…
November 22, 2021

The resurgence of the pandemic in Europe weighs on the euro

The EUR/USD exchange rate hit a new low on Friday at 1.1250 and could weaken further. The announcement of a strict lockdown in Austria sent eurozone bond yields plunging, fueling fears of a further severe economic slowdown. Among the larger countries in the zone, the highest risks are in Germany, where vaccination rates are lower and…
November 19, 2021

No real market driver

The markets are fairly calm and should remain so. In Asia, a certain optimism prevails after the announcement of a new super stimulus plan in Japan, the value of which would reach nearly 10% of GDP. However, this does not impress many people any more. What will be the reality behind…
November 18, 2021

A further rate cut is expected in Turkey

It is almost certain that the Turkish Central Bank will announce a 3rd consecutive and significant rate cut today (-100 to -150bp). Since September, the key rate has plunged below the inflation rate which should soon cross the 20% mark due to the collapse of the currency: -30% since the beginning of…
November 17, 2021

The euro continues to weaken

The publication of very good activity data in the US reinforced the rise in bond yields (the US “10 year” has recovered 20bp in 4 sessions) and pushed the dollar to its highest level since July 2020. Retail sales rose by 1.7% in October and industrial production rose by 1.6%. The NAHB housing…
November 16, 2021

Sharp fall in the euro

The EUR/USD exchange rate plunged yesterday after Christine Lagarde reaffirmed her belief that inflation would quickly fall below 2% and that an ECB rate hike was highly unlikely by 2022. From a technical point of view, the next support for the euro is at 1.1290 USD. It is possible that it will be reached…
November 15, 2021

Deceptive rebound of activity in China

Activity seemed to accelerate in China in October: +3.5% after +3.1% yoy for industrial production and +4.9% after +4.4% yoy for retail sales. In fact, only industrial production returned to normal growth for the month, as the energy supply problems were resolved. But the chart below clearly shows that this is not…
November 10, 2021

Back to reality

The decline in long term bond yields was accentuated yesterday, pulling the US 10 year down to 1.43%, mainly on the idea that Joe Biden might decide to replace Jerome Powell with Lael Brainard, the advocate of “infinite QE”. In reality, both have always voted exactly the same way at Fed meetings and…
November 9, 2021

The market is waiting for US inflation figures

No significant news yesterday. US equity markets did find the resources to go a little higher on speculation that Joe Biden may decide to appoint Lail Brainard to replace Jerome Powell as Fed chair. This would probably ensure an even more accommodative bias in monetary policy, but it is unlikely…
November 8, 2021

Bond yields continue to fall despite a good US job report

The easing in bond yields that began after the Fed meeting and especially the Bank of England’s decision to postpone monetary tightening continued on Friday after a very solid US employment report: job creation picked up and wages continued to accelerate (more details here). The markets focused on the fact that the…
November 5, 2021

Bond markets in disarray

While the Fed had done everything to limit the reaction of the interest rate markets to its decision to reduce its asset purchases, the Bank of England took them by surprise by leaving its key rate unchanged, even though it had largely contributed to fueling expectations of an increase. A tightening still…
November 4, 2021

After the Fed, the Bank of England?

Unsurprisingly, the Fed announced yesterday the start of the reduction of its asset purchases. We already commented on this decision last night (here). Since then, it is confirmed that the markets have welcomed it, with the US main stock market indices reaching new records. The yield curve has steepened a bit…
November 3, 2021

Markets await the Fed with an eye on China

There was little significant movement in the financial markets, although equities continued to rise, with the CAC 40 breaking its record high from the internet bubble in 2000. The outcome of the Fed meeting is eagerly awaited (7pm CET), although it should come as no great surprise: the Fed is expected to…
November 2, 2021

Fed and BoE meetings this week

Equity markets started November higher, following an October in which they more than erased September’s losses. Good corporate results in Q3 seemed to show that rising costs were not weighing on margins, but this is only possible if selling prices rise, which supports inflation fears. The ECB meeting last week…
October 29, 2021

Bond yields and the euro rebound

We spent the week noting the curious decline in bond yields while the US figures were frankly good. If they rebounded yesterday, it was not thanks to the first estimate of Q3 US GDP growth, which came in below consensus expectations (+2% annualized quarterly change), with inventories making a very large…
October 28, 2021

The markets have the blues

A general decline in equity markets and a dramatic drop in long-term bond yields yesterday in the wake of oil prices. It is also likely that the strong demand at an auction for a 5-year US Treasury bond triggered a short squeeze forcing many traders to hastily buy back their short positions.…
October 27, 2021

Long-term bond yields edge down despite excellent US figures

Yesterday, we estimated that the negative impact of inflation on the purchasing power of US households could weigh on their confidence and reinforce the decline in long-term bond yields. Indeed, the 10-year rate continued its slow slide (1.61% versus 1.64%), but after confidence came out much better than expected! The Conference Board…
October 26, 2021

Trump-era corporate tax cuts should not be reversed

Evergrande, Fantasia, Sinic and now Modern Land: the list of Chinese real estate developers unable to repay their USD debt on time is growing. This is a reminder that China’s real estate market cleanup is just beginning and will have, at best, lasting negative consequences on growth. In the US, it appears that…
October 25, 2021

New Covid outbreak in China

While real estate is already expected to weigh negatively on the growth of the Chinese economy in Q4, a new wave of the variant delta epidemic is affecting 11 provinces and leading to new mobility restrictions for the population. Household consumption is expected to suffer, as it did in August. The slowdown in China…
October 22, 2021

Evergrande avoids default

The trend was rather optimistic in Asia after Evergrande, the Chinese property developer paid the interest due on a USD bond. There were 3 days left to do so before a formal default. Chinese authorities are clearly trying to buy time to come up with a credible crisis resolution plan, especially…
October 21, 2021

Inflation expectations on the rise

Equity markets in Europe and the US, with the exception of the Nasdaq, continued to rise modestly yesterday, still supported by corporate earnings. But inflation expectations are increasing and bond yields remain close to their recent highs. The Fed’s Beige Book delivered a state of play of the US economy tinged with…
October 20, 2021

First decline in Chinese property prices since 2015

New home prices in China fell marginally in September for the first time since April 2015. A new property developer, Sinic, was also unable to meet its commitments on a USD loan. The situation remains tense, although “manageable” according to the Chinese authorities. Markets that were driven by positive sentiment until…
October 19, 2021

Renewed optimism

ising equities, slightly easing bond yields, falling USD: optimism prevails despite the sharp slowdown in the Chinese economy highlighted yesterday by the Q3 national accounts. Concerns about rising inflation pushed the US 10-year yield up to 1.62%, but it then eased back to 1.57%. The EUR/USD exchange rate returned to its…
October 18, 2021

China’s GDP slows down significantly

China’s GDP growth fell to +4.9% yoy in Q3, but more importantly, GDP grew by only 0.2% qoq compared to the 2%+ variations in the summers prior to the 2020 crisis. Anti-Covid measures weighed on growth in August and power cuts took over to depress industrial activity in September. This can…
October 15, 2021

Long-term interest rates continued to fall ahead of important US indicators

Long-term interest rates fell again, although they are a bit on the rise this morning: the US 10-year is trading at 1.53%. US producer prices recorded their smallest increase of the year for the month, although they continued to accelerate yoy. This does not call into question the expected tightening of US monetary…
October 14, 2021

Inflationary risk still not taken seriously enough

The rise in the US inflation rate to 5.4% and the maintenance of core inflation at 4% in September reinforce the feeling that this transitory phenomenon linked to the Covid crisis… is bound to last. This is also what Fed members fear from the minutes of their last meeting. They confirmed that the announcement of a reduction…
October 13, 2021

Slight easing in bond yields despite increasing signs of inflationary pressures

The US 10-year yield eased slightly below 1.6% despite surveys showing increasing inflationary pressures. We mentioned the Bank of France survey yesterday, the main findings of which can be found here. But the NFIB survey of small businesses in the US also found that hiring difficulties are at an all time high and companies are…
October 12, 2021

Awaiting key US indicators

The US bond market was closed yesterday, bringing some calm after a sharp rise in yields last week that was not halted by the release of much lower than expected job creation figures. The equity markets are still down due to uncertainties in China (real estate, regulation, energy shortages and…
October 11, 2021

Inflationary pressures are building. Monetary tightening approaches

The US job report for September was not as bad as the weak job creation might suggest, as we explained here on Friday. The acceleration of wages is obvious and cannot leave the Fed indifferent: it should announce the beginning of the reduction of its asset purchases on 3 November. The markets will then…
October 8, 2021

Optimism returns to the markets but rates continue to rise

The temporary deal on the US debt ceiling also gives the Democrats time to agree on the stimulus packages that the Biden administration wants to push through. This may explain why the markets reacted so favourably to the lifting of a risk they never really took seriously (a US default). The sharp rebound…
October 7, 2021

Markets take some comfort from easing energy prices

The strong easing of gas and oil prices has allowed a slight easing of long rates. In addition, the fear of a US default is receding in the short term as both Republicans and Democrats seem ready to raise the debt ceiling until the end of the year. The debates on the Biden…
October 6, 2021

Equity markets yo-yo. Bond yields at their highest since June

Yesterday’s sharp rebound in equity markets should quickly come up against the wall of interest rates: the US 10-year yield rose above 1.57% this morning, its highest level since June. Inflation expectations are simmering. The 10-year break-even inflation rate in the UK is above 4% for the first time since 2008.…
October 5, 2021

The market is navigating between the pitfalls of inflation and lower growth

Equity markets continue to decline, particularly tech. stocks: the Nasdaq fell by more than 2% yesterday and is down more than 7% from its early September highs. Inflationary fears were boosted yesterday by the surge in oil prices, so that the US 10-year yield rose above 1.50%, before easing again…
October 4, 2021

Growth concerns outweigh inflation fears

The stock markets are back down this morning despite a rebound in the US markets at the end of the week, notably based on hopes for a drug against Covid. The Merk laboratory claims that its anti-covid pill can halve the risk of hospitalisation for patients suffering from the virus. With Chinese markets closed…
October 1, 2021

October is not starting very well

While September ended with the biggest decline in the US equity market since March, October starts with a sharp fall in Asia, particularly in Japan, despite a rather good BoJ (Tankan) survey. There is no shortage of cause for concern, as we have detailed here. To sum up, we have gone from…
September 30, 2021

Contraction of industrial activity in China but rebound in services

The August PMIs confirmed the negative impact of the power cuts on China’s industrial activity in September, with the manufacturing PMI falling below 50 for the first time since the Covid-19 outbreak in February. The sharp rebound in the non-manufacturing index from 47.5 to 53.2, on the other hand, shows that…
September 29, 2021

Markets adjust to central banks’ new deal

The US 10-year yield settled above 1.5%, up nearly 25bp over the week. The equity markets finally reacted, with tech stocks suffering the biggest losses (-2.83% for the Nasdaq). Inflationary pressures are not about to end, as evidenced by the surge in German import prices in August: +16.5% yoy, the first time…
September 28, 2021

Bond yields continue to rise. China reassures on the housing market

The US 10y yield reached 1.54% this morning, its highest level since June. The market is gradually integrating the prospect of monetary tightening, not only by the Fed, but by all central banks in the relatively near future. The Governor of the Bank of England has not ruled out a…
September 27, 2021

Germany and China in the spotlight

The German elections have produced an even closer result than expected. The outcome of the forthcoming negotiations to form a government coalition looks very uncertain. The SPD won by a narrow margin ahead of the CDU-CSU. The Greens and the FPD Liberals are following at a distance (see provisional results here). Of the possible…
September 24, 2021

Return of the reflation trade?

Rising equities, the second biggest rise of the year in bond yields and a falling dollar seem to suggest that it was more optimism about global growth (fuelled by continued strong PMI surveys in both Europe and the US) rather than just fear of inflation that dominated yesterday. However, these moves come…
September 23, 2021

Markets absorb Fed announcements smoothly

For a detailed analysis of the Fed’s announcements after its meeting, you can refer to the News sent last night.  Unsurprisingly, the process of reducing asset purchases should start in November. Jerome Powell said that it could end by mid-2022. The Fed has insisted that this is not a sign of a subsequent rate hike,…
September 22, 2021

Between Evergrande and the Fed, little respite for the market

The rebound in European equity markets could continue after Evergrande announced that it had reached an agreement with its creditors on the payment of interest tomorrow on a yuan loan. This seems to confirm that the Chinese authorities will “convince” the domestic creditors to rearrange the repayment terms to avoid a formal…
September 21, 2021

Evergrande fever seems to be subsiding a bit after a very turbulent day

Equity markets suffered significant losses yesterday as they were caught up in the turmoil of the collapse of China’s Evergrande property developer. US indices did recover in the latter part of the session, a trend that was confirmed in Asia overnight, except in Japan where markets were closed yesterday. The consensus…
September 20, 2021

The clouds are gathering

As the Fed meeting approaches this week, markets seem to be growing increasingly concerned. There is no shortage of worries: the pandemic remains present and continues to disrupt global production and distribution chains, which is increasing inflationary pressures, as evidenced by the acceleration of producer prices to +12% yoy in August in…
September 17, 2021

Caution grows before the Fed

The surprise rebound in US retail sales in August (+0.7% m/m), as the variant delta extended its grip on the south and centre of the country, has reintroduced a dose of uncertainty ahead of the Fed meeting next week. What if a reduction in asset purchases is formally announced as early as Wednesday?…
September 16, 2021

Sluggish US retail sales to support equity rebound?

Concerns in Asia weighed on European markets yesterday and in Asia overnight with new restrictive measures adopted by Chinese authorities against tech companies as well as concerns over a possible debt restructuring of major property developer Evergrande. Wall Street had escaped the gloom thanks to a rebound in energy stocks in…
September 15, 2021

Growth concerns rise after Chinese figures

August inflation data in the US came in slightly below expectations, but headline and core inflation remain strong at +5.3% and +4% yoy respectively. In detail, it is not so clear that a downward turn is really underway and the reaction of the markets (equities and bond yields down, USD finally…

Don’t have an account yet?  Sign up here!