The U.S Economy

2 нояб. 2022 г.

As policy rate hikes continued to be the highlight, as I mentioned previously as well, we should continue to pay close attention to the labor market. Excess demand for labor should gradually fade but it is expected to remain well above the norm pre-covid and would continue to support strong job growth. We should pay more attention to Friday's job's report as it is expected that unemployment rate will be down to 3.4% which should sooth fears of imminent recession. Other than job openings etc, another important part of the labor data will be the growth in average hourly earnings. Rate of hourly earnings is slowing down which should show that the labor market isn't the true cause of inflation. With real wages down even as productivity rises, wage growth is just slowing the deceleration in inflation. Despite the tighter labor markets, rising cost, stronger dollar, companies also seem to be showing well earnings. That being said, I am underweight on US equities for now, or rather, underweight on DM equities.

2 нояб. 2022 г.

Заметка

To clarify, I am underweight on US equities still, despite the well earnings, is because in my view, the severe damage from rate hikes has yet to be accounted for. Surely, companies could be managing their margins well but based on various research, these rate hikes have deemed to be at a level that might trigger recessions. With the stronger dollar, MNCs with revenue from other parts of the globe, is likely to see the true impact soon.

In addition, the recent rally, is likely to be pre-mature and short lived as the Fed isn't likely to diverge from its path (at least in my view). Till the real macro indicators show that inflation comes down. Definitely, we should look at other macro factors as well other than the ones mentioned, including the other asset classes such as credit markets which will be greatly impacted by shrinking central bank balance sheets.