Capabilities

We discuss the fears of a potential recession as investor behavior has shifted from ‘buy the dip’ during the pandemic to ‘sell the rally’.

There are three messages from Eurozone monetary data for May released yesterday. 1. The region faces a major recession that is likely to extend into early 2023, at least.2. Economic prospects are at least as bad for core countries as for the periphery.3. Nominal monetary trends are consistent with inflation returning to – or falling below – the 2% target in 2023-24, arguing for an immediate suspension of ECB tightening plans. The “best” monetary leading indicator of Eurozone GDP, according to ECB research, is real non-financial […]

Economic “optimists” argue that UK / US recessions will be avoided because households and firms have accumulated a “war chest” of excess monetary savings that will be deployed to support spending. The assessment here is that high inflation is rapidly eroding excess money balances while households / firms are unlikely to reduce precautionary savings against a backdrop of deteriorating economic / financial conditions. Chart 1 is a recreation of one used to support the optimistic case. The suggestion is that UK […]

Shorter-term leading indicators are confirming the negative signal for US economic prospects from monetary trends. An independent calculation of the OECD’s US composite leading indicator suggests another fall in the indicator in June along with upward revisions to declines in prior months – see chart 1. Chart 1 The indicator is calculated as a ratio to trend, i.e. a decline indicates that output will lag its trend rate of growth. The extent of the shortfall should be related to the speed […]

We are approaching the halfway point of 2022, a year that has proven to be a challenge for nearly all asset classes. In many ways, given the macro backdrop, the market moves have been understandable as central bank tightening cycles, resulting slowdowns (and potential recessions), as well as high inflation are all negative for markets. However, markets are not yet fully pricing in a recession. There are some indications, including resilient earnings forecasts and only a brief yield curve inversion so far, that are not yet suggesting an imminent recession. As we look ahead to the balance of the year, we are also not expecting a recession, but we remain cautious with risks tilted toward slowing economic activity and the related outcomes for risk assets.

We discuss the how travel-exposed names will benefit from the summer vacation tailwinds. As the first official day of the summer approaches, it finally feels like the world is getting back to normal.

Global six-month real narrow money momentum – a key monetary leading indicator of the economy – is estimated to have moved deeper into negative territory in May, suggesting that a likely recession over the remainder of 2022 will extend into early 2023 – see chart 1. Chart 1 The May estimate is based on monetary data for countries accounting for a combined 65% weight in the G7 plus E7 aggregate tracked here, along with 93% CPI coverage. Missing numbers are […]

Chinese May money numbers give a moderately positive message for economic prospects, suggesting that recent policy easing is gaining traction. Assuming that pandemic disruption is contained, domestic demand is expected here to recover during H2 2022 and into 2023, partially shielding the economy from export weakness due to G7 recessions. Six-month broad money growth rose further in May and is around levels reached during previous successful monetary / fiscal stimulus campaigns since the GFC – see chart 1. Chart 1 […]

We discuss the exaggeration of the end of the brick and mortar economy and why the digital takeover did not quite live up to its promise.

G7 GDP data confirm that stockbuilding gave an unusually large boost to growth in the year to Q1. Stockbuilding is almost certain to fall over coming quarters, implying that the growth impact will turn from positive to (probably large) negative. Prospective weakness in stockbuilding reinforces the recessionary signal from real money contraction. Japanese and Eurozone GDP details released today showed “surprisingly” large increases in inventories in Q1, mirroring similar surges in the US, UK and Canada. For the G7 group, […]

Recent economic data have been interpreted as supporting the view that global growth is showing “resilience” in the face of significant shocks, in turn suggesting scope for central banks to continue to dial up hawkishness. This reading of the data is disputed here while monetary trends continue to signal a high probability of a recession by end-2022 followed by a sharp inflation drop in 2023-24. Central bankers ratcheting up interest rate expectations are as off-beam now as they were when […]

We discuss the growth opportunities in the Philippines, an undiscovered country with plenty of potential to unlock value.

Recent UK monetary trends are consistent with a medium-term return of inflation to target, implying that the Bank of England should hold policy even though current inflationary pressures will be slow to fade and the consensus will claim that it is “behind the curve”. The alternative would be to exacerbate a severe squeeze on real money balances that – on the view here – already guarantees a GDP recession. Satisfactory inflation performance in the five years before the pandemic was […]

Incoming monetary data continue to give an ominous message for near-term global economic prospects while suggesting major inflation relief in 2023-24. Fed numbers released on Tuesday confirm that the US broad money aggregate tracked here* fell month-on-month in April, resulting in the three-month change turning marginally negative. Weekly data on currency in circulation, commercial bank deposits and money funds suggest another decline in May. Monthly growth in Eurozone broad money**, meanwhile, was today reported to have fallen to 0.1% in […]

We discuss the recent falling out of favor of the video game industry among investors. After growing at 9% compound annual growth rate (CAGR) for the last decade, there is still much to get excited about regarding the long-term prospects of the video game industry.