Independent Strategy
Independent Strategy: Nick Kennedy

Nick Kennedy, Chief Economist

NICK KENNEDY, Chief Economist, joined Independent Strategy in December 2012. He bears primary responsibility for all aspects of Independent Strategy’s investment research process, with a focus on macroeconomics and financial market strategy. He holds an honours degree in Politics and Modern History from Manchester University and holds the MSTA designation from the Society of Technical Analysts.

Posts by Nick Kennedy

Google activity data through to 17th remains positive, with none of the anxiety present in markets transmitting into the real economy while all the fuss about the Delta variant also seem to be having minimal impact in the real world – a function of the hugely successful vaccine programmes that continues to rollout globally and has reached effectively full coverage in nearly all of the major economies.

Google activity data through to 10th September shows a continuing pick-up in activity, underpinned by a continuing rise in mobility.  Again, leading the drive higher has been Europe, notably Germany and Spain, but France, Italy and the UK also registered decent improvements.  The bounce over the last couple of weeks is really a function of the ending of the summer holidays and start of the new school year.  But economic activity is also looking fairly solid too.

Labour market growth slowed a little more than expected in August, amid some disruption to the services recovery from the Delta strain.  But there were still +235k jobs added (mkt +750k) and we saw upward revisions to prior months, so the net impact was still positive, leading to a further decline in the unemployment rate to 5.2% from 5.4% and the U6 rate dropped down to 8.8% from 9.2%.  The participation unchanged at 61.7%.  Govt payrolls shrank a little after recent strong gains (-8k) but manufacturing continued to grow (+37k).  Weekly hours were 34.7 from a downward pay revised 34.7, which by itself remains elevated from its pre-pandemic range.

Google activity data through to 27th August showing some stabilisation.  The overall picture does not look too dissimilar to last summer when economies were operating relatively normally between the first and second waves.  The picture for economic activity remains more positive than for overall mobility, as travelling habits and restrictions in some places continue to crimp that side of things.  But as we’ve seen this year that hasn’t stopped the overall economic recovery from continuing.

Another month of strong payroll gain, the headline number showing a net gain of 943k jobs (mkt 870k) while revisions also shifted upward (a net 146k added for the past three months).  703k of the July gain came from private payrolls (mkt 700k).  Manufacturing added 27k jobs and government 240k, accounting for all of the surprise.  Labour participation edged up to 61.7% which left the unemployment rate at 5.7% (down from 5.9% but above the 5.4% median guess).  Prime age participation (25-54) saw a further surge, for both male and female workers.  This is a positive trend and reinforces our lack of concern for labour scarcity.  It’s important to contrast this with the post-GFC period where prime participation continued to fall after the initial crisis.

Google activity data through to 31st July continues to paint a broad picture of resilience, with limited impact from the increase in Covid cases.  Even in the economies in our group that have been most impacted by the Delta surge, the effect on activity has been pretty limited and economic activity continues to improve.

Independent Strategy Media

MEDIA » 3rd August, 2021David Roche – Bond Yields: Myth & Reality

Bond yields today are unsustainably low.  It is easy to see why.  The Fed’s inflationary use of the word “transitory” finishes by creating “truth” out of a myth and commercial banks have so much excess liquidity parked at the Fed that putting it into higher yielding bonds is a no brainer.

But this will all reverse.  The causes will be the size of the US budget deficit that increases demand but not supply for Treasuries. And the longer term drivers of inflation: big government, big debts, central bank lack of independence, inequality and social income and national economic policies that reverse the disinflationary forces of globalisation.

When bond market bubbles burst, equities will follow suit because the discount factor for future profits will rise reducing their present value and profits will become more cyclical and unpredictable.

Network:

Global daily new infections increased 7% (after 8%) in the latest 7 days.  Total active cases rose by 8% for the second week.  These are not the exponential increases one would expect if Delta were going to blow the top off the lid of the global economy.  The drivers were developed economies (EU, US and Japan) and SE Asia.  Global fatalities per day fell from 10k to 9k.

The headline Q2 GDP number looks like quite a big miss as +6.5% q/q ann. versus the +8.5% mkt median.  And Q1 was revised down a touch too.  But the underlying picture still looks pretty robust in reality.  In fact, the bulk of the miss could be attributed to the ongoing disruptions that Covid continues to generate, specifically in terms of the further sharp decline we saw in inventories, which knocked 1.1% pts from that 6.5% rate.  Government spending was also notably weak (its contribution knocking a further -0.3% pts off the headline), particularly government investment.

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