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Economy

The Q1 2024 earnings season is drawing to a close with 93% of S&P 500 companies having reported results as we go to press. Three-quarters (two-thirds) of companies have topped earnings (sales) expectations in Q1, according to Factset. Next quarter’s…

The economic schism in the world economy, between the non-US developed economy in recession and the US in strong growth, is unprecedented during our lifetimes. Now the schism will continue in reverse, as the non-US developed economy rebounds while the US fades. There are important implications for rates, the dollar, and sector and regional equity allocation which we discuss. Plus: base metals are a tactical short.

Canada’s headline CPI inflation decelerated in April from 2.9% y/y to 2.7% y/y. Notably, core median CPI eased from 2.9% y/y to a softer-than-anticipated 2.6% y/y and core trimmed-mean CPI ticked lower from 3.2% to 2.9%. Food and durable goods led the…
Our US Investment strategists have used the savings rate as a proxy for households’ willingness to spend. Its persistent decline suggests that consumers have been spending their pandemic-era excess savings and our colleagues would consider a normalization…
The New York Fed Quarterly Report on Household Debt and Credit indicates that US household debt rose 1.1% q/q in Q1 to $17.7 trillion. Higher mortgage, home equity loan and auto loan balances drove the bulk of the Q1 increase, while credit card balances…
Emerging market stocks have outperformed their global counterparts by 4 percentage points in USD terms since February according to MSCI indices. They have gotten a boost from the bounce in the global manufacturing cycle. The MSCI Emerging Market index moves…

The death of the Iranian president reinforces our base case view of Middle Eastern instability and at least minor oil supply shocks. Rapid geopolitical developments in recent weeks are pointing to a new bout of global instability. The US is hobbled by its election. Conflicts with Russia, China, and Iran are all now escalating at the same time, at least marginally. Investors should reduce risk and shift to more defensive assets, markets, and sectors.

Q1 Earnings and sales growth were strong, but the devil is in the details: Without the Magnificent Five, earnings growth for the index would have been negative. On a positive note, margins have stabilized, and earnings growth is expected to broaden into yearend. Companies are optimistic about the economy. Development of AI applications is in full swing, but few companies are monetizing them yet. Consumer spending is strong but is slowing. We reiterate our underweight of consumer sectors, and overweight of Software and Services as the “don’t fight AI” adage holds.

Export dynamics from small open economies are bellwethers for global trade and recent export data out of Taiwan and South Korea suggested robust global growth momentum in March. In April, Singapore’s electronics exports, which are particularly sensitive to…
Several economic releases out of China disappointed in April. Retail sales decelerated from 3.1% y/y to 2.3% y/y and fixed asset investment growth slowed from 4.5% YTD y/y to 4.2% YTD y/y. Both were expected to accelerate. Although industrial production…