Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Macro Digest: Extremely strong job data report
Steen Jakobsen
Chief Investment Officer
Summary: US hiring in July came out better than expected in a very strong job data report posted today. This could and should put the dovish Powell drivel away.
This also confirms our base case: Any slow-down in growth is only in real terms, not nominal. Recession or not, the corporate earnings, the consumers and overall global economy are in much better place than central banks and politicians wants to support and believe. FED and Mr Powell lost massive face on this number, and earnings are also accelerating... +5,2%.
However, the market is in RISK ON mode and to reverse here will take more than one trading day… but the ISM and now job data simply can't support a Peak rates, Peak Inflation scenario.
Everyone is getting flow data vs. stock data wrong. Surveys, confidence is high frequency interpreted by people who has only seen ONE BUSINESS MODEL for 30 years - now with paradigm shift….. things are oppositely correlated… (real data is strong and ACTUALLY rising as seen by credit impulse in Europe, China and the US).
The bottom line:
This drives RATES UP and shows Powell (again) to have no feeling with the economy. The US credit conditions EASED by 100 bps in July. Now we will take that back and more which means… reverse to DEFENSIVE OUTLOOK. Keep core positions and overweight but trim momentum trading.
The move is over 20 bps across short-end contracts…
Again, let me stress... It will take more than one day of trading to reverse the RISK ON mode presently in the market, but it is inevitable that this means FED speakers and market will ramp up terminal rate.
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