Jeroen Blokland

I am intrigued and—admittedly—surprised by the robustness of American consumer spending. I understand that wage growth has been substantial, but inflation has risen even more. While nearly everyone in the U.S. has a job (or two or three), it hardly offsets the increased financial burdens.

Long-term inflation expectations have risen this year.

I had to double-check my Bloomberg screen. But it was there indeed, Dutch central bank chief Knot indicated in a recent Bloomberg interview that further monetary tightening after the ECB meeting in July is anything but guaranteed. And that, coming from the most hawkish member of the ECB’s Governing Council.

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.

No this column is not about sustainability, climate targets or Co2 emissions. But about the fable that energy companies are a reason why broad market profits need not fall.

Energy profits

Earnings-per-share of US energy companies included in the S&P 500 Index are up more than 250% from a year ago. But this does not disguise a fall in profits of the rest of the companies.

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.