Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Chart of the Week : Wall Street vs Main Street
Christopher Dembik
Head of Macroeconomic Research
Summary: Our 'Macro Chartmania' series collects Macrobond data and focuses on a single chart chosen for its relevance.
Today’s chart highlights everything that’s wrong with America. While the stock market has jumped more than 32% since March 23, the U.S. economy has collapsed with cumulative jobless claims reaching more than 40 million over the same period and the unemployment rate is expected to climb around 21-22% in May according to our forecast.
What is currently happening in the U.S. is much more than anti-racism protests turning into riots, this is the accumulation of all the frustration from COVID-19 mismanagement by the authorities, its related economic consequences and the increase over the past years and even decades of wealth inequality.
The social contract has been broken for a long time in the U.S. The coronavirus crisis was the straw that broke the camel’s back and precipitated the U.S. society into a deep social crisis that was doomed to burst. It is not a coincidence that riots are more widespread in states with Gini coefficient above 0.481, such as the district of Columbia, New York, California or to a lesser extent Connecticut while there is barely demonstrations in states where inequalities are less important (Gini coefficient below 0.410), like Utah and Alaska.
The ongoing crisis also shows the progressive agenda promoted by the mayors of America’s larger cities, nearly all members of the Democratic Party, has led to poor results. They have especially failed with housing and public transport policies. If we take as example California, numerous new regulations have been implemented at state and city levels in order to promote green energy (notably California Solar Initiative) or access to healthy food, but this is clearly insufficient to reduce the huge opportunity gaps existing between communities. Policymakers haven’t put a definitive stop to NIMBY (which stands for “Not in My Backyard” and refers to residents’ opposition to new housing construction in their neighborhood) while it should be a top priority in order to lower housing prices and allow workers to move and live close to where they work. They also haven’t developed enough affordable public transport to reduce highway congestion, unclog city streets and, more importantly, bridge the gap between poor and wealthy neighborhoods.
This is a defining moment for America. The crisis reveals how deep is the social malaise of sections of the population deprived of equal opportunities.
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