You’ll hear constant worry from folks about how uncertain the economic outlook is. Isn’t it always? Or, at least, it should be. The real time to worry is when its not uncertain.
Which got my spidey senses tingling when I read what UBS say about the economy:
- In one sense the global economic story is very clear—but is it obvious enough even Federal Reserve Chair Powell will notice? Cooling consumer goods demand is keeping disinflation pressures alive. China’s August export data showed another (expected) significant drop. The data is now consistent with counterparts’ trade data (unlike earlier this year when China reported exports no one seemed to be importing).
- German July industrial production fell again, even with energy production flattering the data. Consumer goods production growth was negative. Of course (being German data), the previous month was revised, and was revised higher.
- On the other side of the supply-demand balance, the Fed’s Beige Book of economic anecdotes reported cooling consumption, highlighting disinflation forces in manufacturing and consumer goods. US consumer durable goods prices have been in deflation since December 2022, one of the most dramatic reversals of inflation pressure in modern times.
Its difficult to dispute any of this, UBS is on track here. The ‘but’ for me is what is lurking around the corner. Services sector inflation is still bubbling away. Oil prices are finding a floor. Falling goods prices have been the low hanging fruit. It seems to me that the time for uncertainty, if it ever went away, is right around the next corner.
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ps. On a sort of related note for US equities, Wells Fargo is not overly worried about the recent slide, saying:
- “The credit calendar is the main driver of seasonal stock/bond weakness, in our view,”
- “September’s credit deluge (and damage) likely will occur in the two weeks prior to FOMC (Sep 20) as bond investors sell/short Treasuries for new credit positions,”
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S&P 500 update, weekly candles. A piddling pull back, so far at least: