The Latest On The Global Economy: Uneveness In Global Growth Mirrors Vaccination Rates

Despite uneven global growth the equity markets are pushing higher. The volatility risk premium points to a higher market over the next few days, while my technical reading of key stocks in the S&P 500 is bullish. Yesterday's cross-asset action brought several positive factors for US stocks. The action in EM currencies indicates the $US is somewhat weak. Inflation expectations are stabilizing based on measures of Treasuries and TIPS. Expect the S&P 500 to rise modestly over the next few days.

Growth around the world is as uneven as vaccination rates. A good summary measure of global growth is oil demand, and on this score OPEC+ is bullish, and is likely to increase its sales of oil just to meet the higher demand. Another good measure is South Korean exports, a proxy for electronics demand: its exports rose 34.9% year-over-year last month, a very positive sign. But on the negative side the Chinese manufacturing index dropped unexpectedly, and the authorities are once again fine-tuning the economy by encouraging more bank lending, including real estate loans. This is happening despite the simultaneous drive to cut leverage. The CCP’s attempt to micromanage the lives of its citizens undercuts its stature as a paternalistic guardian, which may eventually redound to slower economic growth and ever more restrictions by the CCP to maintain its cultural power. That of course is counterproductive and actually boosts the geopolitical position of the US, which needs it given the tragedy in Afghanistan.

Uneven growth is painfully augmented by rising inflation. The EU is seeing rates in the 3% region, despite a sluggish economy. And while inflation is moderate in the US, for many the rise in housing prices is a key issue: homeowners are ecstatic by the double-digit growth in home prices, while those without homes see inflation as it really is. With employment growth slowing, for many the prospect of stagflation is real even if the overall economy is solid and benefitting the affluent.

Key to global growth and lower inflation down the road is vaccination rates beating out the growth of COVID variants (i.e., lambda, etc.). While some nations like Singapore are highly vaccinated others like Australia are suffering an economic dip as delta COVID rages among an unvaccinated population. Thankfully the European Community has reached a 70% rate for adults, though this is still insufficient because of iniquities in rates across nations. The US by contrast stands at around 63% with vaccine skeptics likely buoyed by Biden’s poor show in Afghanistan.

My current market positions are in Pfizer (PFE) and Starbucks (SBUX), and a short position in the SPX (UPRO and SPXU).