Counting Days While Waiting On Nothing

Traders were “unruffled” Tuesday, ahead of the Fed and key data. That was Bloomberg’s adjective. This is the time of year when journalists have very nearly exhausted the thesaurus. They’ve made it all the way to the “u”s on the quest for synonyms to describe placid markets.

Notably, the US and the EU were set to close the curtain on the previously intractable Boeing-Airbus dispute. After “just” 17 years, the subsidies spat will be resolved with a five-year accord, which Bloomberg’s coverage described as “driven, in part, by a growing awareness among policymakers in Brussels and Washington that China’s state-sponsored aerospace manufacturer, Comac, is on track to become a legitimate rival in global planemaking by the end of the decade.”

Between the G-7 and NATO gatherings, shared concerns over China’s economic and military rise provided a convenient excuse for the rekindling of cozy relations between America and its traditional allies. Those ties were frayed during the previous administration. Trump was famously antagonistic towards NATO, a predisposition which, perhaps more than anything else, raised questions about whose agenda his administration actually sought to further.

Beijing isn’t particularly amused with any of this. China on Tuesday chafed at NATO’s “systemic challenge” label, saying that while the PLA doesn’t present any such threat, it won’t “sit back” if anybody presumes to challenge it in a “systemic” fashion. That’s all according to a statement, which also “urged” NATO to stop “exaggerating” the PLA’s military prowess. (I’m afraid exaggeration isn’t necessary.)

Meanwhile, European equities gunned for another daily gain. Shares were already riding the longest winning streak since 1999 (figure below).

“The rally in European equities since last March has been the sharpest in two decades, but investors think more is coming, with 51% of survey respondents expecting the bull market to continue until next year (up from 36% last month), while the proportion believing that equities will peak in H2 this year has declined from 47% to 38%,” BofA said, in the European edition of the bank’s monthly fund manager survey. “Investor optimism is buoyed by the fact that European growth expectations remain close to peak levels, with a net 92% of respondents believing in a stronger economy over the next twelve months.”

Data stateside will give folks something to talk about, which is “not nothin’,” so to speak, on lazy summer days. I’m compelled to say the Fed meeting “looms large,” but that would be a mischaracterization. While there’s plenty of scope for Jerome Powell to misspeak, there’s very little chance of a definitive shift in the messaging, and there’s obviously zero chance of an actual policy shift outside of tweaks to the administered rates.

“We’ve been doing a lot of waiting around in recent weeks but the wait for [June’s] FOMC meeting feels extreme in that regard,” SocGen’s Kit Juckes wrote Tuesday. “There are other things going on in the US besides the FOMC – S&P hit a new high and the calendar throws out data, but as far as I can tell, nobody cares about any of that because it’s all about the Fed.”

I try to spice things up by injecting a soundbite from Rabobank’s Michael Every into the mix every day (or at least every second or third day). It gives the whole, running narrative a little pizzazz. “The evidence to date suggests this Fed is clear about what it wants to do in the way only those with a political mission are, rather than those looking at noisy data and uncertain events,” he said Tuesday.

“The range of short and then long-term inflation outcomes is very wide, and depends on political decisions, not econometric models,” Every added, noting that “the Fed isn’t acting that way: it seems to have esoteric knowledge, a revealed truth – or an amazing model.”


 

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2 thoughts on “Counting Days While Waiting On Nothing

  1. It seems fair to assume that the Fed does NOT have a better model than everyone else but, rightly or wrongly, believe it has a good grasp of the macro situation and its likely forward path.

    Inflation is up b/c of base effects, COVID related bottlenecks, possible misalignment between supply and demand following changes in preferences post COVID, easy monetary policies and extra supportive fiscal policy.

    And really it seems only the last element matters/is truly variable – which means indeed that inflation is mostly about politics right now. If Biden cannot get outsized fiscal packages implemented on an ongoing basis, then there’s little reason to anticipate meaningful inflation going forward.

    That’s what I understand of macro orthodoxy at the moment.

    One potential caveat : wage inflation. If the situation somehow leads to rapid, sustained wage inflation then fair enough, the situation would change. But do we really expect Labor to be able to exercise pressure on Kapital for any length of time going forward?

  2. So much digital ink in comments and analysis spent on wage inflation. But for overall inflation the key number is not nominal wages but unit labor costs- which may not be rising that much. Given all the changes in the economic machine we are driving, statistics at this point can be hazardous to rely on. We will be in a better position to get a clean read on what is happening in the fall. At that point, the schools will be back, vaccination will be in stasis, we will have a clear idea on what legislation will get passed, extra unemployment benefits will have lapsed, and the supply chain will have had some time to partially reboot. Of course there is always the possibility of a breakthough variant- g-d help us.

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