Independent Strategy

Macro Matters

US

29th April, 2020 » US Prelim Q1 GDP

While the decline in first quarter GDP (-4.8% q/q ann.) was not unexpected, the outturn still doesn’t represent the full scale of the economic contraction.  The collection periods of the sample data are focused in the early part of the survey period and the assumptions the models make for the balance of the period rely heavily on these inputs.

China

15th April, 2020 » Hubei is not China

Total Covid-19 infections may just have broken the two million barrier globally. But there are encouraging signs that, at least in some places, active cases have already peaked. Scientists’ understanding of the disease is still in its infancy and there are many questions we don’t yet have clear answers to. In particular, if we’re all exposed to the same disease, why is there such a wide variation in apparent infection, fatality and recovery rates from country to country?

UK Boris seems to be responding quite well to treatment, which is encouraging.  The media debate that his temporary removal created a power vacuum and compromised decision making just misunderstands how Cabinet government works and was just a complete non-story chased by journalists fatigued by the Covid echo-chamber. Real question is how do we exit the current lockdown situation?  Cabinet is discussing this today and it’s expected we’ll see the initial three week period extended through to the end of the month.

Bleak payrolls report.  While the median survey was always going to be a short in the dark, the -701k decline in jobs was significantly more troubling than the mkts -100k guess.  That’s the worst number since March 2009, a period of losses that saw five consecutive payrolls figures below the -700k mark starting from November 2008.  Looking at the past fortnights jobless claims figures the April number and revisions to this release will paint an even bleaker picture of the labour market.  In the household survey nearly 2.987mn jobs were recorded lost.

ADP reported fewer than expected job losses for March, with a modest -24k drop (mkt -150k), which compares to the 3.3mn jump in initial jobless claims last week.  Partly this is due to the survey dates (it tallies responses up to the 12th of the month).  So we will see catch up next month.  Prior month was revised down to 179k from 183k.

The rapid and devastating effect of Covid-19 on the labour market is unprecedented based on this week’s jobless claims.  Initial claims in week ending came in at 3,283k which looks like a data error rather than an actual real data point.  But real it is, and further increases look likely in the coming weeks as the economic stop continues to push people out of employment.

Trying to look beyond to what the day after looks like is important, particularly at a political level.  Will it be a blow or a boost to the populists? In the US, France and Germany it looks like it will be a reminder to voters of the damage populists can do.  There is a broad feeling that serious government is required.

US household income growth looked pretty solid with a 0.6% m/m gain during January, which tends seasonally, to be a weaker month.  That lifts the y/y rate back to a shade under 4.0%, although the near-term trend remains one of moderation.  On the spending side the increase surprised on the downside at +0.2% m/m and that pulled y/y growth back to 4.5%

Global

25th February, 2020 » Corporate earnings health check

In recent years equity markets have been driven more by central bank largesse than by corporate profit performance. With bond yields close to record lows — in both real and nominal terms — investors have charged into higher-yielding risk assets with gusto. Still it behoves us to keep an eye on the underlying earnings picture.

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