The Latest On The Global Economy: American Labor, Capital & Big Business Dancing Together

Not only is the US economy powering confidence in the delicate bull market in equities, but the global economy is doing its part to make America look like the safest place in a nasty world. The volatility risk premium points to a higher market over the next few days (though volume may be light since the VRP could easily reverse and catch investors offside), while my technical reading of key stocks in the S&P 500 is bullish. Still, there continue to be several negative factors across global asset classes. The action in currencies signifies $US strength. The US yield curve is rising and in the current context that is bearish. Inflation expectations are rising based on measures of Treasuries and TIPS. But taken together, the market looks set to overcome these concerns and rise moderately over the next few days.

Labor shortage pressures in the US were revealed in the latest JOLTS report, but simultaneously the productivity and unit labor cost data were not bad, and this on top of last Friday’s strong jobs report signals that confidence among business, capital and labor is strong. Consequently the S&P 500 is rising even with valuations high by historical standards. Today’s CPI didn’t blow past estimates and this is bullish, since it means that the Fed is not under extreme pressure to raise rates faster than the market is pricing in. With bonds falling and the S&P 500 making new highs, the market is clearly fine with the idea of a rate hike next year, as implied by eurodollars futures contracts.

And the situation across the world supports this bullishness on America. While Germany reported drops in confidence (ZEW Survey), that’s easily explained by the shocking floods and rise in delta Covid. It bears watching but for now German investors appear to be riding out this string of bad news, and this stoicism is of course extremely bullish for both Western Europe and its ostensible ally, the US. And China’s PBOC is telling investors that easier policy is on the way as financial indicators slide. So while the Chinese Communist Party tries to do all it can to micromanage the combination of financial markets, tech firms, education firms, and karaoke music, while simultaneously marching the nation toward cultural fidelity to socialism with Chinese characteristics, whle putting neighbors in the South China Sea in their place and keeping tabs on North Korea & the Taliban, America’s seemingly more rational policies make global investors see the high flying S&P 500 as a safe haven.

Yesterday I sold my position in Activision (ATVI), and my current market positions are in Facebook (FB), Korn-Ferry (KFY), MKS Instruments (MKSI), Titan Machinery (TITN), and nearly hedged position that is net long in the SPX (UPRO and SPXU).