Insights into the latest macroeconomic trends, fiscal policies, and financial markets

MacroKid: my macro blog

Author: Aleksej

  • Yes, but: US bifurcation is everywhere

    Yes, but: US bifurcation is everywhere

    What are common characteristics of current US economy and the financial market in general? On the surface, yes, things are great, but constituents can look very weak.

    S&P is making a new high every day? Yes, but breadth is worrying. Current negative breadth was associated with a major top during the dot com bubble or is usually a sign of market capitulation.

    Now it’s becoming almost shameful to mention how expensive the stock market is. But divergence between US market capitalization to GDP and US contribution to global GDP is rising.

    Corporate margins are record high? Yes for some, but not for smaller businesses:

    Russell 2000 is also significantly underperforming S&P this year, especially compared to 2016, the first Trump election. Incremental policy benefit will be much smaller relative to the past.

    NFP is rising to a new high every month? Yes, but according to household survey private employment declined by 1.3 million since the middle of 2023:

    Number of people not on temporary layoff is accelerating.

    Credit spread are making new lows? Yes, but number of bankruptcies is above pre-Covid level:

    Small businesses are paying around 9% interest on their short term credit, while sales and earnings diffusion has collapsed.

    Number of businesses losing money is rising:

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    Expectations about Trump policy are super optimistic? Yes, but there’s still no pick up in current activity. Small businesses optimist jumped, same as in 2016. However, actual sales with prices (nominal GDP proxy) are declining this time.

    Combined manufacturing and services ISM new orders, backlog and output – all declined in November.

    Commercial buildings construction leading index is also falling – capex cycle is turning lower.

    Yes, US perceived exceptionalism is here, but equities are becoming very risky and bonds stay attractive just before consensus is pushing FED to take a pause.

  • Trump trade is taking a breather, while economy is slowing

    Trump trade is taking a breather, while economy is slowing

    Trump trade so far is diverging from 2016 analogy. At the moment most markets see much smaller incremental policy change compared to 2016. On top of that, rates stay restrictive enough to slow the economy further: demand, employment, margins, inflation – are all softening.

    Bonds aren’t selling off post elections, despite large intraday volatility on the election date. 30-year yields are basically flat in the last 2 weeks.

    Dollar strengthens less than in 2016 too (percent change ytd).

    So are inflation swaps (actual value).

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  • EU hard landing risks are rising, ECB should be cutting more aggressively

    EU hard landing risks are rising, ECB should be cutting more aggressively

    A number of really weak economic surveys are coming out from EU, while unemployment in Germany is spiking. Output continues to slide, while expectations are dropping quickly too, according to S&P Global:

    Unemployment is rising in Germany and France, expectations are deteriorating as well. Lower unemployment in Italy and Spain help keeping overall EU unemployment smaller.

    Consumer unemployment expectations are slowly picking up further.

    German vacancies are collapsing to absolute levels of 2015-2016.

    More companies in Germany are reducing their workforce and VW is not alone – just a couple of months after IG Metall demanded a 7% wage increase.

    Overall EU car registrations collapsed 18% year over year in August and ZEW points to more downside here.

    Price pressures are easing at the same time in both manufacturing and services, even though motor insurance can continue to have an outsize effect on average services inflation.

    Eurozone economic surprise index reversed this week and corporate earnings revisions are deteriorating.

    German short term yields are starting to catch up with US move, which should probably continue. And bad news should be bad news for equities too.