Jeroen Blokland

There you are with all those fancy indicators like yield curves, ISM Manufacturing, and housing markets. They all point in the same direction, down! But the incoming US macro numbers are in no way pointing to a recession, nor to a soft landing. Spend it!

The US economy created more than half a million jobs in January. That was almost three (!) times more than expected. Most importantly, such a job growth figure does not fit with a coming recession, but neither does it fit with a much hoped-for soft landing. On the contrary.

It indicates that the US labour market is still glowing even after 450 basis points of tightening.

The latest ‘chart of the week’ shows a difference between market expectations of what the Federal Reserve will do and what the central bank wants, a fascinating development, says True Insights’ Jeroen Blokland. The Fed as well as the European Central Bank will update their views on interest rates later this week.

A post recently appeared on my Bloomberg timeline that headlined: ‘BoE’s Bailey Says Truss Risk Premium on UK Assets is Gone’. Being overweight in some UK assets, I wondered what Bailey bases this on.

So I look at some asset classes that were hit hardest by the panic sell-offs caused by then finance minister Kwasi Kwarteng’s mini-budget. Just a refresher: that mini-budget consisted mainly of tax cuts for high-income earners that were not compensated elsewhere in the budget.

No, this is not a column about the Netherlands’ performance at the World Cup. Although, of course, the title fits this seamlessly. This column is about China and its Covid issues.

As might be expected, the US 10-year - 3-month yield curve has also turned negative. This inversion means that the two traditional yield curves with the longest and most reliable track record as recession predictors are now negative. By itself that’s is no reason to sell equities, or any asset class for that matter.

Corporate profits will not fall even if economic growth declines, because of inflation. That is the thinking many investors have when it comes to expected earnings growth for the next 12 months, which is still positive. But I think we are now past the stage where profits are still driven by inflation.

The ISM Manufacturing Index is not only an important indicator of future growth, but is also highly correlated with market returns. What many investors overlook: it’s not just correlated with equity returns, but also bonds.

By using indicators that say something about the direction of the ISM Manufacturing Index to define different ISM scenarios, you can derive implied returns for each asset class.

European financials are in the spotlight again. And once again, it is not because of anything good. The CDS spread on Credit Suisse has spurted up over the past few days. Is this just the tip of the iceberg? Many “investors” and “gurus” are eager to point out possible systemic risk. At least as far as I can see, there is none of that right now.

UK financial markets are in “turmoil”. This somewhat CNBC-esque opening, however, covers it well. And it has resulted in a chart that usually belongs to an emerging economy on the verge of collapse. The British pound is falling despite rapidly rising interest rates.