Is a Fed easing cycle a sign of the end of US exceptionalism?
Societe Generale Corporate and Investment Banking - SGCIB
Helping you build the future
Dear Readers,
In early August, equity markets experienced turbulence due to extreme positioning on the Japanese yen carry trade and optimism on US tech earnings growth outlook, which has since been recalibrated.
Current market conditions show a significant rebound in equity markets, a normalisation of volatility and a declining but stabilising trend in government bond yields as central banks move from fighting against inflation to fighting for GDP growth.
However, despite the significant rally and record highs in equity indices, it's important to acknowledge that the volatility of the summer was not simply a 'storm in a teacup' but maybe a warning sign. Declining optimism around US tech earnings, a key driver of the US bull market, highlights the increasing risk of an end to US exceptionalism and a potential repricing of US equities.
As we navigate these shifts, one question comes to the fore: Could the new Federal Reserve easing cycle be the factor that brings this period of US exceptionalism to an end?
??? Kokou Agbo-Bloua
Multi Asset Portfolio - Cracks in US exceptionalism
On 5 August, the Topix crashed (-12.4%, its worst single-day decline since Oct. 1987), the yen surge accelerated (by 1.7% on that day), and the VIX hit a high of 65 (intraday). During the June/July period, bond yields collapsed by 80 basis points; the SOX and Japan equities briefly entered a bear market, and the Magnificent 7 came close to that too. Fast forward to today, and equity markets have recouped a large part of their losses, volatility has normalised , and yields, while on a downward trend, show signs of stabilisation. This does not mean one can ignore the summer volatility.
??? Alain Bokobza
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??? Klaus Baader
The Big Picture: It's All About Managing Expectations
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Is the super-low US saving ratio a ticking economic timebomb?
I must apologise for falling asleep on the job. I hadn’t spotted that the US personal saving ratio (SR) had slid all the way back to what I would describe as crisis levels. July’s decline below 3% should be sounding a very loud warning claxon in the ears of investors to not forget what happened in 2007 when the SR fell this low.
It would be fair to say that the US consumer has surprised on the upside this year growing by a heady 2.7% yoy in July. But where has this strength come from at a time when real incomes have been growing by a paltry 1% yoy?
??? Albert Edwards
??? Andrew Lapthorne
?? Michelle Lam
??? Kokou Agbo-Bloua