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We haven't done one of these in a while...
So let's get right to it.
What's important in the macro sphere right now and why you should be paying attention to it!
The global policy uncertainty index reaches levels not seen since May 2019
In the post COVID world, it's good to see this, naturally.
This is an index of multiple global policy uncertainty indices to identify, perhaps, a fear gauge on where policy currently lies.
Naturally, 2020 was a massive outlier, since we have never really seen the extent of 'unknowns' ever before.
US manufacturing PMIs are showing some stalling
Possibly to be expected though, considering the base at which we came from last year...
China General Manufacturing PMI drops below 50
This is more likely the initial driver for global manufacturing heading lower.
Chinese manufacturing demand heading to negative territory is indicating a slowdown in demand.
We can also take stock of this situation by looking at...
The Chinese Credit Impulse since the start of the year
This is a measure of new public and private credit as a % of GDP and we can see that recently it has ticked to negative.
This chart could be a good signifier in the turning point of the commodities 'super cycle' that many had been referring to, since even with supply chain disruptions, demand would have to remain constant for the price to push higher.
Which way commodities?
Considering China is a massive demander (love that term) of commodities, are we likely to see a push higher or a bit of a reversion to the mean?
Above is a linear regression with +/-2 standard deviations on the mean, and we are trading right at +2std deviations right now.
So make your mind up... which way?!
This could provide some insight...
The Fed's Nowcast data is pointing to a slowdown in growth expectations
We wrote about this in the 'Where's your head at?' piece, where we reckon peak growth is here...
And US yields are likely signalling that peak growth is here too...
While many had been focused on yields pushing higher as a reflation trade, our thoughts have always been that growth is the real factor that will keep rates subdued.
From January and March, we mentioned that inflation was largely a non-story, relative to the absolute scaremongering that was being thrown about...
What's more, is that yields haven't really reacted to the Fed's more 'pro' stance on tapering either.
And although we're bullish USD in the midterm, the announcement of the more hawkish policy leading into year end has not really sent the dollar skyrocketing...
The market took it as being rather dovish, sending growth stocks higher and the dollar flatter - which to me, certainly sounds like a faltering in the growth outlook.
And the container situation should still be concerning markets into year end and beyond
There is still very little let-up here and producer costs are reflecting the requirement to increase margins!
Or are they...?
If we consider supply and demand dynamics, you might expect that, even with the supply chain issues, there might be a higher supply of goods as prices rise.
So why are volumes so low?
Could it be that consumers aren't paid enough to service the higher prices?
I'd argue it is.
Now I've used a chart of EU stocks above, but we can also assume that the US will be facing similar issues...
So let's just be clear about my stance on inflation...
No, it's not like Weimar, but the problem at least in the shirt to midterm is that it's difficult for consumers to cope with these higher prices stemming from the supply chain issues.
So although firms are raising prices, I doubt there will be a sufficient feed through effect whereby demand can keep up and be growth inspiring!
And since this is predominantly a supply chain issue, I think the talk of raising rates is a big, big issue, and will go as far to say that from a policy perspective, extensive tapering could be problematic, since it will affect growth and not the inflationary root cause which monetary policy cannot affect!
The risk is ALWAYS the growth aspect, not inflation targeting from my perspective.
Let me know your thoughts on this chart dump!
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