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Summary
- US growth is beating euro-area growth. However, the divergence may have peaked, with recent US data weaker than consensus expected.
- Chinese companies are struggling to make money, but a new securities regulator is providing hope for investors.
- The odds of Joe Biden quitting the presidential race have increased markedly in the last few weeks.
- Bank exposure to commercial real estate is giving many investors cause for concern, but we think the risks are limited.
Market Implication
- US economic outperformance is one factor supporting our long USD positions against GBP and EUR. We have updated our stop losses to reflect a potential peak in the outperformance.
US Growth Soars Past the Rest of the World
US growth momentum remains positive. Both the Atlanta and NY Fed nowcasts for Q1 growth are around 2.8%, while the euro area’s nowcast is a paltry 0.4%. Consensus forecasts for 2024 growth are consequently being revised up for the US and down for the euro area (Chart 1). Should this persist, it will support our long USD positions vs EUR and GBP.
However, as Antonio argues, the economic divergence between the US and the RoW could have peaked. Recently housing starts, retail sales and industrial production were all much weaker than consensus expected. We therefore update our stop loss on the trades.
Chinese Companies Are Struggling to Make Money
China’s equity market is in the doldrums. One reason is the retreat of foreign investors. Another is deep mistrust from retail investors who face a weak legal system and unaffordable IPOs. Perhaps the most fundamental issue is the negative development of company profits (Chart 2).
However, as Liang Ding argues, the new securities regulator Wi Qing has taken a positive first step to boosting investor confidence, meeting market participants to discuss market reform and investor protection. Onshore stocks rallied 10% in response.
Could Biden Quit the Election Race?
Betting markets have Donald Trump as the favourite in the US elections, with incumbent Joe Biden slipping in recent weeks. They also show a markedly increased risk of Biden leaving the race, as proxied by the difference between the odds of a democratic victory and a Biden victory (Chart 3). Dominique analyses the race in her latest election monitor.
Are Banks at Risk From CRE Exposure?
The recent New York Community Bank (NYCB) blowup has brought renewed focus on bank exposure to commercial real estate (CRE). It is a potential problem – banks hold about 50% of CRE debt (Chart 4). Fortunately, as John argues, the risk is distributed across 5,000+ mostly small banks that serve local markets. More bank failures and mergers are likely – but it is an idiosyncratic rather than systemic issue.
Matthew Tibble is Commissioning Editor at Macro Hive. He has worked as an editorial consultant and freelance editor for companies such as RiskThinking.AI, JDI Research, and FutureScape248.