“Despite two consecutive quarters of negative growth, the US economy is clearly not in a recession, even as investor fears have pushed investment in US Treasuries to levels not seen since November of 2021”. (Photo credits: Adobe Stock -)
Vacancy. “Weekly view” by César Pérez Ruiz, Head of Investments and CIO of Pictet Wealth Management.
The strength of the US labor market surprised markets last week with half a million jobs created in July, a figure well above expectations. Most of the new jobs have been in the service sector, which has benefited from the recovery of the economy after the lifting of health restrictions.
The median hourly wage rose 5.2% annually, while unemployment hit its lowest level since 1969 at 3.5%. In this context, we do not expect any change in the Federal Reserve’s monetary policy, as the markets now expect a rate hike of 75 basis points (bps) at the September meeting.
Despite two consecutive quarters of negative growth, the US economy is clearly not in a recession, even as investor fears have pushed holdings of US Treasuries to levels not seen since November. of 2021. The start of the recession seems inevitable, but it is not imminent in our opinion. . Meanwhile, the US economy should benefit from the Inflation Reduction Act passed by the Senate on Sunday night. We will be keeping an eye on the next producer and consumer price inflation figures to be released later this week.
Probably the last quarter of strong sales growth
Equity markets weathered the return of interest rate fears well last week, thanks to the release of fairly reassuring second quarter results. Strong nominal growth translated into higher-than-expected sales and companies maintained margins by passing on higher costs to customers.
While 79% of S&P 500 companies announced a +15% increase in revenue and +10% in earnings per share, these figures reached +26% and +17% respectively in Europe, thanks to the weakness of the euro.
We are neutral in terms of equity. This is probably the last quarter of strong sales growth, as consumers now prefer to shop around for the best prices or limit their purchases rather than accept higher prices.
48% of containers passing through the Taiwan Strait are now blocked
Reminiscent of the 1995 crisis, Chinese military exercises around the Taiwan Strait have intensified in response to a visit by US House Speaker Nancy Pelosi. The Chinese army thus shows that it is capable of isolating the archipelago from the rest of the world.
With 48% of containers passing through the Taiwan Strait now blocked, supply constraints are likely to worsen if tensions persist. But it should be noted that China, heavily dependent on Taiwan for semiconductor chips, limited the blockade to 1% of its imports from the island.
By contrast, 42% of Taiwanese exports are destined for China, with 70% of the products in question related to technology. The current situation is likely to encourage companies to further diversify their supply chains. In addition, world food prices plunged on a scale unprecedented since 2008 to reach their lowest level since January, in the wake of the Russian-Ukrainian agreement on the export of grain stocks.