Following the June FOMC meetings minutes release, Federal Reserve Chair Jerome Powell continued to underscore the threat of a global slowdown and its risks to our domestic economy. Arguably, these may be the most dovish minutes released all year. Bloomberg's Consumer Sentiment Index hit its highest level in nearly two decades. What could be the reason for the spread between wage and core inflation? Has wage inflation officially peaked? In China, steelmakers are feeling the pressure of a 67% surge in iron-ore prices. Finally, a side-by-side look of the US 10-Year Government Bond versus its German and Greek counterparts.
1. Federal Reserve Chairman Jerome Powell was a little more dovish than expected yesterday in both the prepared remarks and at his Congressional testimony.
Source: Marcobond and Nordea, as of 7/11/19
2. However, the markets are pricing in as many as three cuts, and that would return the U.S. to negative real rates. With Inflation and unemployment low, this makes little sense to us...
Source: Scotiabank Econimics, as of 7/11/19
3. Another point of view:
Source: SunTrust, as of 7/12/19
4. Reasonable to low debt levels, a rising stock market and low unemployment has the U.S. consumer almost giddy...
Source: Bloomberg, as of 7/11/19
5. Peak or temporary setback?
Source: Credit Suisse, as of 7/12/19
6. This wage inflation is not concerning, especially since the real average hourly earnings has been negative since the 1970s...
Source: Federal Bank of St. Louis, as of 7/11/19
7. Which one is off, or is it a little of both?
Source: Alpine Macro, as of 7/11/19
8. How low are global interest rates? The 10-year Greek and Italian bonds have yields lower than the UST, not to mention 14 junk rated companies have negative yields...
Source: Bloomberg, as of 7/11/19
9. France is bucking the trend, but it has been a long time coming...
Source: Gavekal Data, as of 7/12/19
10. Australia and some ore-rich emerging markets should see a tailwind soon as they replace these stockpiles.
Source: SteelHome, Bloomberg, as of 7/12/19
BCM's Mid-Year Review is here! It’s hard to believe we are already half way through 2019 and what an odd market this is:
- Despite the S&P 500 hitting a new record high (again), U.S. equities got beat on a 1-year basis by an unexpected asset class.
- The trade war has helped spawn a manufacturing recession in four of the world’s top five economies. Hopefully this “truce” will help rejuvenate global manufacturing.
- Dovish monetary policy from the world's central banks during this economic environment? We caution investors against overexcitement.
Explore these key themes further in our 2Q19 Mid-Year Review: Odd, Odds, and Tods.
Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.
