CoreMacro
| US
US macro analysis on the Fed, the consumer, and fiscal policy, and the investment calls that follow.
The monetary policy sweet spot won't end for equities until interest rates climb above the equilibrium rate - that won't happen even with a rate hike in December. But even though equity markets will continue to cheer a go-slow Fed in the short run, the sustainability of these gains will be dubious until a healthier environment for earnings takes hold.
Disappointing ISM surveys could signal a growth consolidation. That, in turn, would spur a correction in risk assets.
The August payrolls report did not change our view that a Fed rate hike is likely in December, but not before that.
Chair Janet Yellen's comments at Jackson Hole reinforce our view that a Fed rate hike is highly unlikely until December. The risk is that overbought equity and junk bond markets correct as an oversold dollar prices in a December move.
The lack of inflation makes a Fed rate hike before December unlikely. In the interim, the continued flow of liquidity could sustain the high-risk rally.
Last week's blowout jobs report had the beautiful combination of strong growth and flat/rising underemployment rates. This supports our expectation of a Fed hike in December rather than one in September.Accelerating growth when the economy is approaching full employment suggests that the equity bull market is not over, though we are entering a more volatile phase.
The odds of an inflation "mini-scare" are rising, although deflationary tail risks from abroad cannot be dismissed.
The major banks are more willing to lend to the consumer and less willing to lend to the corporate sector.