Easy Money Hangover and US GDP Data

Clifford Bennett, Chief Economist at ACY

29.10.2021 02:30 pm

#stock

US Q3 GDP

Flatlined below pre-Covid.

US Growth has stalled and it is not a short term phenomenon.

Good morning,

Please note the Australian 10Y Bond Yield is striking higher in a rather steadfast fashion.

We were the first to call RBA hikes in 2022, and at the same time the 10Y bond being already on its way to 2.5%. Then 3.5%.

It is important to realise, from bonds to stocks to property, the easy money party is fast coming to an end.

The economic hangover could be of a profound and extreme nature. You cannot successfully manage your investment portfolio over the next 3-5 years, without incorporating this forecast.

US Q3 GDP was an absolute disaster, dropping from 6.7% Q2, to just 2%.

Without inventories being up 2.1%, GDP would have been a negative, and that inventory build is unlikely to occur again in Q4. It is important to note that the market forecast for Q3 was originally 7.5%. Some people were even forecasting 8% and higher, just three months ago? We said the US economy was in serious trouble at the time of the Q2 release, and would weaken significantly.

Consensus on the day was for a 2.7% print. As the market had been catching up to our view. The result was even worse than that drastically revised expectation.

The currency market acted like the low result was a surprise. While the equity market took it as good news that the US economy managed a positive?

Trading markets, based on economic fundamentals has never seemed a greater waste of time, and money. Yet, even now, today, after that firm through the day equities rally, albeit with some mild selling waves, the market just doesn't seem that strong to me. It feels more like a crumble cake, than a rock-solid chocolate story.

We are forecasting the US economy better than most of Wall Street, but the market just has a story of its own, and is in need of counselling?

If you are, and it is reasonable, wishing to respect the immediate upside in US equities, then, the on the day, and through New York trading all important support levels to keep an eye on, are simply the low points of yesterday's trading. There is no way the US market should move below those levels, if it is truly strong and this rally post GDP data was warranted on true demand.

What I mean by that, is my concern it became a day traders Meme story. This is as bad as it gets, as they always think. While the really big funds may have already started to sell into this buying frenzy. For the reason mentioned yesterday, that they need the liquidity of when everyone else is buying, to get out of their massively long holdings in what is a still a weakening US economy.

Regards,

Clifford Bennett