This week we feature an Exclusive from former NY Fed and Bridgewater Economist, Dominique Dwor-Frecaut. She gives her take on US labour market trends and argues that cracks are starting to appear. This increases equity downside risks later this year.
Then I have my selection of the best recent macro blogs. It includes Thomas Piketty on not ignoring income inequality even as the focus is shifting to climate change, Japan’s mixed experience in raising the inflation target, and Britain’s changing class divide. On markets, we feature a guide to crypto-currencies, the rise of Chinese family offices and models to forecast commodities…
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This week we feature an Exclusive from former NY Fed and Bridgewater Economist, Dominique Dwor-Frecaut. She gives her take on US labour market trends and argues that cracks are starting to appear. This increases equity downside risks later this year.
Then I have my selection of the best recent macro blogs. It includes Thomas Piketty on not ignoring income inequality even as the focus is shifting to climate change, Japan’s mixed experience in raising the inflation target, and Britain’s changing class divide. On markets, we feature a guide to crypto-currencies, the rise of Chinese family offices and models to forecast commodities.
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Enjoy!
Bilal
US Labour Is Starting To Crack – Equities Could Struggle in H2 (4 min read) The latest US labour market data showed a further slowdown in labour income. This will likely drag down consumption growth and, from mid-year, push unemployment higher. Meanwhile the TINA (there is no alternative) rally is likely to continue, helped by low yields and the Fed’s willingness to provide additional support if needed.
(Dominique Dwor-Frecaut, 14th January 2020)
A crypto focus this week with a basketball star launching a token-based investment platform and a new comprehensive guide to everything crypto
Introduction To Cryptocurrency (Nakamoto.com, 4 min read) A new website that brings together all things related to Crypto. It includes a free guide compiled by Dragonfly Capital’s Managing Partner, Hasseb Qureshi, that explains blockchain, cryptography and all that goes with it. Except, of course, the identity of Satoshi Nakamoto.
NBA’s Spencer Dinwiddie Set to Roll out Tokenized Investment Platform Next Monday (The Block, 1 min read) The scheme will allow the player to instantly collect up to $13.5 million off of his $34 million guaranteed three-year contract. Token holders would then receive monthly payments in the next three years with a 4.95% base interest rate. [Bullish Crypto]
Predicting Intraday Jumps in Stock Prices Using Liquidity Measures and Technical Indicators (arxiv.org, 45 page read) Researchers at Nanjing University and the University of Texas successfully model intra-day stock price moves on the Shenzen stock exchange using information within liquidity and technical indicators. Their data-driven approach is portable to predict price moves in individual stocks.
Japan’s mixed experience with raising its inflation target and an insightful contribution to the ongoing Philips curve debate
Raising the Inflation Target: Lessons from Japan (Federal Reserve, 10 min read) Fed takes a useful look back at the BoJ’s 2013 decision to raise its inflation target from 1% to 2%. They find the new target combined with the introduction of QQE boosted growth but only partially on raising inflation (CPI remains below the pre 2013 target). Achieving the old, before adopting a new target is one lesson for other central banks considering such a move. ECB and Fed take note.
Why Has Wage Growth Been Subdued in the Advanced Foreign Economies? (Federal Reserve, 6 min read) The authors use several models to show that slower productivity growth and lower natural rates of unemployment explain much of the apparent breakdown in the relationship between unemployment and wages. Once this is taken into account the wage Philips curve is indeed alive and well.
Debt Has Not Been Caused by Low Interest Rates, but Higher Rates Would Topple the Whole World Economy (Naked Capitalism, 2 min read) Richard Murphy highlights the latest World Bank concerns on rising debt. Normalising monetary policy is not feasible in his opinion as raising interest rates would “fuel disaster and the most massive collapse”.
Britain’s changing class divide and Piketty on inequality
What Does Class Mean in 21st Century Britain? (Open democracy, 6 min read) In the context of Labour’s election defeat, the author argues that the class divide is no longer as clear as in the past. The switch out of traditional Labour seats was partly attributable to economic and social factors.
After the Climate Denial, the Inequality Denial (Le Monde, 4 min read) Economist Thomas Piketty argues that rising inequality is being ignored in France and other rich countries. Economic policies in recent years have clearly benefitted the well off and governments have failed to improve transparency. A sobering reminder that reduction in inequality and climate change must be addressed simultaneously.
As fourth quarter GDP releases start to trickle in later this week we feature one take on achieving a growth target. Plus, the winners and losers in three decades of globalization.
How to Boost Your Country’s GDP Figures Like China (The Sounding Line, 3 min read) Ahead of Friday’s Q4 China GDP release this article gives a simplified take on the country’s heavily criticised national accounts data. From building bridges to nowhere, rounding up and underestimating the past, this is the 101 guide to what is in reality a highly complex task.
Three Decades of Globalization: Which Countries Won, Which Lost? (Wiley, 30 page read) They find education and macroeconomic stability as robust determinants of a country’s share in world exports. In contrast to earlier decades, countries across income groups experience marginalization and globalization.
Economic Policy Uncertainty in the Euro Area: an Unsupervised Machine Learning Approach (ECB, 45 page) The paper presents a novel machine learning approach to estimate economic policy uncertainty and its sub-components using news articles from Germany, France, Spain and Italy over almost twenty years. The paper concludes the fiscal policy uncertainty component was quite significant for Spain and Italy when the sustainability of public finances was in focus. Investment for France, Italy and Spain reacts heavily to political uncertainty.
Taiwanese President Tsai Ing-wen’s re-election risks the ire of China
Entangled US-China-Taiwan Relations Likely Just Got More Complicated After President Tsai Ing-wen’s Big Re-election Victory (SCMP, 2 min read) Saturday’s landslide re-election of Tsai Ing-wen as Taiwanese President will add uncertainty to the US-China relationship and could see Beijing attempting to gain concessions through trade policy. [Bearish US-China]
Political Uncertainty, Market Anomalies and Presidential Honeymoons (Journal of Banking and Finance, 23 pages read) Presidents are usually highly inclined to stamp their own mark in the office at the start of a new term, raising market uncertainty and risk aversion. The authors find robust links with spikes in risk measures during these honeymoon periods but have a hard time aligning political uncertainty with overall equity returns.
Can too much information hurt?
Too Much Transparency Makes the World More Opaque (Marginal Revolution, 1 min read) Transparency is highly desirable, but at certain times it can prove a double-edged sword. The NY Times latest plan of having all presidential candidate interviews on the record will fail to achieve its intended objectives. We will likely no longer see off-the-record uncomfortable comments.
Forecasting Energy Commodity Prices: A Large Global Dataset Sparse Approach (Dallas Fed, 24 page read) The authors show improved forecasting accuracy for energy prices several quarters ahead, particularly gas, using a quarterly global VAR dataset for the 33 largest economies. More accurate predictions could have important macro consequences for the world’s energy dependent countries.
Family offices are booming, the catchup on innovation continues
One in 3 Super Rich in China Builds Wealth on Real Estate (The Straits Times, 1 min read) China’s wealthy are twice as likely to have made their fortune in real estate compared with elsewhere according to a survey discussed in this article, with almost 30% attributing wealth to the property sector. Family offices are benefitting as succession planning and wealth preservation move into focus. [Bullish Chinese wealth management]
China: From Imitator to Innovator? (Science Direct, 10 min read) Comparing innovation of Chinese firms with U.S. peers the authors find that policy change had a positive effect on Chinese firms’ research intensity. Chinese companies have not overtaken their U.S. peers yet in innovation, but they have reduced the gap.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)