“Despite two consecutive quarters of negative growth, the US economy is clearly not in a recession, even as investor fears have propelled investment in US Treasuries to levels not seen since November 2021.” (Photo credit : Adobe Stock – )
stand free. “Wochenblick” by César Perez Ruiz, Head of Investments and CIO at Pictet Wealth Management.
The strength of the US jobs market surprised markets last week with the addition of half a million jobs in July, a figure well above expectations. Most of the new jobs have been created in the service sector, which has benefited from the economy’s recovery after health restrictions were lifted.
Average hourly wages have risen by 5.2% annually, while unemployment is 3.5%, its lowest level since 1969. In this regard, we do not expect any change in Federal Reserve policy as markets now expect a 75 basis point (bps) rate hike at the September meeting.
Despite two quarters of negative growth, the US economy is clearly not in recession, although investor fears have pushed holdings in US Treasuries to levels not seen since November 2021. The onset of a recession seems inevitable but, in our view, not imminent. Meanwhile, the US economy should benefit from the Inflation Reduction Act passed by the Senate late Sunday evening. We will be watching closely for the next number of producer and consumer price inflation figures due later this week.
Probably the last quarter of strong revenue growth
Equity markets held up well against the return of interest rate fears last week thanks to the release of somewhat reassuring second quarter results. Strong nominal growth led to higher-than-expected sales and companies maintained margins by passing higher costs on to customers.
While 79% of S&P 500 companies announced a +15% increase in revenue and +10% in earnings per share, in Europe these figures reached +26% and +17% respectively, thanks to the weak euro.
We are equity neutral. This is likely to be the last quarter of strong sales growth as consumers now prefer to shop for the best prices or limit their purchases rather than accepting higher prices.
48% of containers passing through the Strait of Taiwan are now blocked
Chinese cross-strait military drills reminiscent of the 1995 crisis have intensified in response to the visit of US House Speaker Nancy Pelosi. The Chinese army is demonstrating its ability to isolate the archipelago from the rest of the world.
With 48% of containers crossing the Taiwan Strait now blocked, supply shortages are likely to worsen if tensions continue. However, it should be noted that China, which is heavily dependent on Taiwan for semiconductor chips, has limited the blockade to 1% of its imports from the island.
Conversely, 42% of Taiwanese exports are destined for China, with 70% of the products involved being technology-related. The current situation should encourage companies to diversify their supply chains even further. In addition, global food prices have fallen at an unprecedented rate since 2008, to their lowest level since January, as a result of the Russian-Ukrainian deal on grain stocks exports.