Labor Market
The US primary election is effectively over. The Biden-Trump rematch – our base case since 2022 – is all but set in stone. Only a health issue or freak incident could change that now.
The SIFI banks expressed confidence in their credit outlook for 2024 and expect that credit losses will crest soon, given the reserves they’ve already set aside. Their implicit embrace of the soft-landing narrative suggests to us that the consensus is getting closer to being set up for disappointment. We remain tactically equal weight equities and fixed income but think conditions may soon favor turning defensive.
The ECB will begin cutting rates in June, what does this start date imply for the yield curve and European cyclicals?
Investors have taken comfort in the fact that unemployment has remained low in the major economies. But underneath the surface, there are clear signs that labor demand is weakening. The clock keeps ticking towards our H2 2024 recession call. After being bullish on risk assets last year, we are slowly turning more defensive.
An update to our outlooks for the Fed’s interest rate and balance sheet policies following this week’s remarks from Fed Governor Waller.
The combined US credit impulse and fiscal thrust indicator will likely relapse in 2024, heralding growth weakness. Stalling US sales volume and falling inflation, combined with sticky labor costs, will herald a non-trivial profit margin compression. The recent increase in Asian exports will likely prove to be a mid-cycle improvement rather than a cyclical recovery.
