“New COVID” was trending on social media Friday.
Earlier this week, I suggested markets were on the brink of re-entering a “good news is bad news” regime to the extent robust economic data in the US would likely push the Fed to accelerate the pace of the taper.
Wednesday’s personal income and consumption data (including a better-than-expected read on real personal spending) was notable for the juxtaposition with surging prices. Consumer sentiment may be deteriorating alongside buying perceptions, but that’s not stopping Americans from opening their wallets and Birkin bags. (I’m just kidding. Nobody you know has a Birkin.)
Read more: The Return Of ‘Good News Is Bad News’
Rising inflation, rising wages and a resilient consumer argue for an unwind of stimulus. And that’s exactly what US policymakers have been keen to telegraph.
The simple table (below, from Goldman) underscores the point.
Little wonder Goldman, Deutsche and other majors pulled forward their forecasts for liftoff and predicted a doubling of the Fed’s taper pace.
Fast forward just 36 hours and markets weren’t so sure.
Rate hike bets were trimmed aggressively on Friday (figure below) as markets pondered the prospect of a new COVID variant and associated curbs on travel and activity.
“As travel restrictions are reintroduced and fears of new lockdowns rise, the market is reacting in the same way it did in 2020,” SocGen’s Kevin Redureau and Roland Kaloyan wrote, noting that two baskets of “COVID-hostage” shares were under extreme pressure, underperforming the broader market by 4%.
Market participants, a notoriously skittish bunch, were quick to suggest that monetary tightening is not only less likely, but no longer necessary. Or at least if the new variant turns out to be “potent,” as one strategist clumsily put it.
I’d be remiss not to at least suggest that the reaction was overdone. Like that turkey you tried to deep-fry this week.
In the event central banks view the latest COVID news as a reason to be cautious about tightening (note that RBNZ and the BOK both hiked rates this week), and assuming the new variant proves incapable of evading the vaccines, Friday’s global rout may appear, with the benefit of hindsight, as a buying opportunity. Especially considering new treatments, like the Pfizer pill.
At least for a day, though, bad news was just bad news.
I’m probably at least 3-4 degrees of separation from knowing a Birkin owner but when I fry a turkey it comes out perfect. A belated happy thanksgiving to all, I enjoy reading the comments almost as much as the articles. Thank you.
Implied normalization with Covid would amount to 100 dead a day on average in the USA. If a variant starts killing children, all bets are off. The therapeutics have become remarkably better and this is not a repeat. Plan for the worst and hope for the best.
Sadly, late yesterday after expanding its testing Pfizer announced its new pill isn’t as nearly as good as originally thought.
Yes, I did overcook my turkey. Anything that you do once a year, you’re just good enough at it to be bad.